Industry representatives have expressed skepticism concerning the legality and potential consequences of the United States securities regulator’s plan to broaden custody regulations.
In light of the recently filed letters, it is evident that at least two supporters of the crypto industry have opposed the United States securities regulator’s proposal to build up regulations surrounding crypto custody. The Blockchain Industry, a crypto industry advocacy group, gave in a letter to the Securities and Exchange Commission (SEC) on May 8th which was the deadline for commentary on the proposal. The letter criticized the SEC’s proposition to alter its custody regulations. A similar letter was sent by Web3 venture capital fund Andreessen Horowitz (a16z).
According to Marisa Tashman Coppel, a policy attorney at the association, on May 8th – “the proposed rule would drastically curtail investment in digital assets and stated that the current rule in its form is unlawful.”
On the same day, a16z general counsel Miles Jennings tweeted its letter, saying the firm “did not mince words” and stated that the SEC’s proposal is a “misguided and transparent attempt to wage war on crypto”.
The Blockchain Association presented more than a dozen separate arguments in its letter to confute the SEC’s proposal. The association asserts that the rule goes beyond the SEC’s jurisdiction while restricting advisors from running transactions with crypto exchanges. It also jeopardizes the investor’s assets. A16z’s letter echoed similar arguments but with a greater emphasis on how it impacts the registered investment advisors. The company altercated that the advisors then couldn’t use crypto and that the regulation could contravene the SEC’s required duty of care for such firms.
It stated that the rule prohibits advisors from trading cryptocurrency on centralized exchanges, is not practical, and can be risky.
The proposal made by the SEC in February which applied more strict rules for the investment advisers in the custody of assets, including crypto, is yet to be approved.
Companies must set apart their assets correctly, and custodians will experience annual audits by public accountants, along with other measures to ensure transparency.
The proposal received backlash from within the SEC as well. Commissioner Hester Pierce expressed concerns regarding the practicality and scope of the regulation along with its tendency to target crypto-related businesses and industries.