“‘To be clear: just because acrypto trading platform claims to be a qualified custodian doesn’t mean that it is.’”
U.S. Securities and Exchange Commission Chair Gary Gensler on Thursday said that based upon how crypto trading and lending platforms generally operate, investment advisers can’t rely on them as qualified custodians.
Gensler spoke before a meeting of the Investor Advisory Committee.
A qualified custodian is an institution with regulatory approval to hold assets on behalf of clients.
“Advisers, in complying with the current custody rule, are required to safeguard investors’ crypto funds and securities with qualified custodians,” said Gensler. “To be clear: just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is. When these platforms fail — something we’ve seen time and again — investors’ assets often have become property of the failed company, leaving investors in line at the bankruptcy court.”
Gensler pointed to a new proposed safeguarding rule the SEC proposed, which could bar investment advisers from keeping assets at crypto firms, as a way to enhance the protections that qualified custodians provide.
The SEC has recently cracked down on crypto firms and key players in the industry. In February, the agency penalized former NBA star Paul Pierce $1.4 million for promoting a cryptocurrency without disclosing that he was receiving payment for the promotion, charged Terraform Labs and CEO Do Kwon with defrauding investors, and crypto exchange Kraken was fined $30 million for failing to register its staking program.
