The United States Securities Exchange Commission (SEC) is reportedly looking into the custodial practices of conventional Wall Street investment advisers who could be offering digital asset storage to their clients without the necessary qualifications.
According to a Reuters article published on Jan. 26, citing “three sources with knowledge of the investigation”, the SEC probe has been ongoing for several months and recently gathered momentum after the crypto exchange FTX crashed.
The sources have stated that the SEC investigations have not been made public as the agency’s inquiries are generally not disclosed.
The Reuters report states that a major part of the SEC’s investigation into this matter is focused on whether registered investment advisors are following regulations and laws related to the custody of crypto assets purchased by customers.
By regulation, investment advisory firms must adhere to “qualified” standards in order to provide custodial services to clients, as well as meet the custodial guarantees laid out in the Investment Advisers Act 1940.
Cointelegraph contacted the SEC for clarification on the matter but did not receive an immediate response.
We’ve adopted the best practice of having procedures and policies in place to meet one of their most important obligations – ensuring the broker has the ability to buy and sell securities. . pic.twitter.com/gZdIEcNbVY
—Gary Gensler (@GaryGensler) January 24, 2023
The SEC’s latest disclosure shows that it is not ignoring traditional investment firms in the digital asset space. Anthony Tu-Sekine, head of the Seward Kissel Blockchain Cryptocurrency Group, made this point in a note to Reuters. :
“This is an obvious compliance issue for investment advisers. If you have custody of client assets that are securities, then you must keep them in custody with one of these qualified custodians.”
“I think it’s an easy decision for the SEC to make,” he concluded.
Related: Senator Warren Proposes Cutting Wall Street’s Involvement In Crypto
On Nov. 15, the Wall Street Blockchain Alliance (WSBA) sent a letter to the SEC asking if there were any potential changes to the “Custody Rule” in regards to digital assets.
Cointelegraph contacted WSBA to see if the SEC has responded.
Meanwhile, the securities regulator has continued to expand its crypto enforcement efforts over the last 12 months. In May, it raised the staff of its “Crypto Assets and Cyber Unit” for 2022 by nearly 100%.
They have kept busy dealing with the ongoing lawsuit against Ripple Labs, the actions that led to the collapse of FTX founder Sam Bankman-Fried, amongst other matters.
