SEC investigates if investment advisers comply with crypto asset custody rules and expand to more traditional Wall Street firms.
The U.S. Securities and Exchange Commission (SEC) is reportedly investigating whether registered investment advisers are adhering to rules surrounding the custody of client crypto assets.
The probe intensified in the wake of the collapse of the crypto exchange FTX, according to three sources with knowledge of the inquiry.
Related; SEC Probing Insider Trading in Crypto Exchange Platforms
The scrutiny from SEC in the crypto industry expands
This broad enforcement sweep signals the top U.S. markets regulator’s scrutiny of the crypto industry is expanding to more traditional Wall Street firms. By law, investment advisers cannot have possession of client funds or securities. Unless they meet certain requirements to protect the assets.
One of these requires advisers to hold such assets with a firm identified as a “qualified custodian.” Though the SEC does not hold any specific list or offer licenses to firms to become such custodians.
Also read; Warren Urges SEC’s Enforcement in Crypto Scares Industry Leaders
The SEC’s investigation signals developing concerns for traditional firms
The SEC targets traditional firms that sought ways to invest in crypto. The agency’s accounting guidance made investing too capital-intensive for many lenders to hold digital assets on behalf of clients. By doing so, the body introduces limiting options for advisers seeking custodians.
“This is an obvious compliance issue for investment advisers. If you have custody of client assets that are securities, then you need to custody those with one of these qualified custodians,” said Anthony Tu-Sekine, head of Seward and Kissel’s Blockchain and Cryptocurrency Group. “I think it’s an easy call for the SEC to make.”
The SEC keeps questioning advisers’ efforts to follow the agency’s rules around custody of clients’ digital assets for several months. However, the probe gathered pace in the wake of the blow-up of the crypto exchange FTX.
