Coinbase, a16z, and the Blockchain Association are making a move in response to the proposed SEC crypto custody rule. These companies are voicing their concerns and suggesting changes that need to be made before the finalization of the regulations. This article discusses the proposed rule and the responses from the opposition.
Understanding the SEC’s Proposed Custody Rule
According to the US regulator, the proposal would require qualified custodians, such as banks or broker-dealers, to safeguard client assets (including crypto assets) by properly segregating and holding them in accounts. This is to protect the assets in case of a qualified custodian bankruptcy or other forms of insolvency. The new rules would also enhance protections for certain securities and physical assets that cannot be maintained by a qualified custodian.
SEC Chair Gary Gensler has expressed support for the proposal, stating that it would help prevent the mismanagement, loss, or abuse of investors’ assets by advisers. The government official likewise highlighted that the proposed changes would ensure that investors working with advisers receive the necessary protections for all of their assets, including crypto assets.
The proposal would require advisers with custody of client assets to obtain a surprise examination from an independent public accountant to verify client assets, too. Additionally, the proposal aims to update and enhance related record-keeping requirements for advisers and amend Form ADV to align reporting obligations with the proposed rule.
Coinbase, a16z, and the Blockchain Association’s Response
Coinbase, a16z, and the Blockchain Association have raised concerns about the proposed rule, stating that it could limit innovation and harm the industry. They argue that the rule could stifle the growth of the cryptocurrency industry by making it harder for new companies to enter the market.
Coinbase, a giant cryptocurrency exchange, has set forth an alternative approach to the proposed rule. Instead of requiring cryptocurrency companies to hold assets in custody by a qualified custodian, it suggests that companies should have a certain level of insurance to protect customers’ assets. The crypto exchange believes that this approach would allow for more innovation while still protecting customers’ assets.
Additionally, Andreessen Horowitz (a16z), a Silicon Valley-based venture capital firm investing in cryptocurrency companies, also voiced its thoughts about the proposed rule. The firm believes that it could create a barrier to the entry of new companies, making it harder for innovation to occur in the industry.
Lastly, the Blockchain Association, a trade association for the cryptocurrency industry, suggested that the SEC should allow for more flexibility in the proposed rule. The association believes that the rule should be less prescriptive and it should allow for different approaches to custody. This method would let companies to choose the best way to secure their customers’ assets.
The planned SEC crypto custody rule is an important step towards regulating the cryptocurrency industry and protecting investors. However, Coinbase, a16z, and the Blockchain Association are concerned that the rule could limit innovation and harm the industry. These companies have suggested alternative approaches to the proposed rule that would allow for more flexibility and innovation while still protecting customers’ assets.
It remains to be seen how the SEC will respond to these suggestions, but it is clear that the cryptocurrency industry is not without its challenges when it comes to regulation at this point in time.
Giancarlo is an economist and researcher by profession. Prior to his addition to Blockzeit’s dynamic team, he was handling several crypto projects for both the government and private sectors as a Project Manager of a consultancy firm.