SEC Asks For Feedback Regarding Crypto Assets Custody And Settlements For Investors

SEC Asks For Feedback Regarding Crypto Assets Custody

The creation of laws by a nation’s government can either enable the growth of an industry or stifle it. This can be seen with states like Ohio accepting Cryptocurrency for tax payment and in places like China banning Cryptocurrency altogether.

As such, many of these nations are starting to understand that, due to the unique nature of Cryptocurrency and Blockchain, proper input will be needed before any new laws are passed. This was seen in Germany and now, the Securities and Exchange Commission in the United States has formally asked for input regarding custody rules that apply to digital asset trading and settlement.

This was done via a March 12, 2019, open letter to Karen Barr, president, and CEO of the Investment Adviser Association.

Need A Hand?

Currently, the rules that are put in place lay emphasis on the protection of investors funds. The regulations in question are Custody Rule (Rule 206(4)-2) of the Investment Advisers Act of 1940 and as a result, there is a lot of responsibly being put on those who elect to act as custodians of investors’ Funds. All investment advisors have to register with the Securities and Exchange Commission and must comply with their laid down regulations.

The SEC is, therefore, soliciting for input regarding how these laws will apply to digital assets. After all, they were created during a time when digital assets did not exist and applying every aspect of these laws to digital assets might not be the best idea. Not only does the SEC seek input, but they also ask if any changes or allowances will need to be made “regarding the regulatory status of an investment adviser and custodial trading practices that are not processed or settled on a delivery versus payment (“Non-DVP”) basis.”

A DVP settlement is a situation in which payment for a security is due to the buyer at the same time that it is delivered. As a result, non-DVP settlements carry a greater risk because more time is given. The SEC now wants to know how digital assets should be handled in this regard to avoid any loss of funds. They have also specifically asked what types of digital assess currently trade on a DVP and non-DVP basis and what steps are already being taken to mitigate risks.

This has been praised as a progressive move on the part of the SEC, with Katherine Wu, director of business development at Messari, saying:

“What’s interesting to me is that the SEC does not seem to be jumping the gun in subjecting all non-DVP trades as under the custody rule, but rather is posing this as an opportunity for them to assess the underlying custody risks.”

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