SEC to Vote on Crypto Custodian Rules: What It Means for Investors

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• The US Securities and Exchange Commission (SEC) is proposing to introduce new rules that could make it harder for crypto firms to act as qualified custodians.
• A five-member SEC panel will vote on the proposal on Feb. 15 and a majority vote of three out of five is needed for the proposal to proceed.
• If approved, the SEC’s proposed rule changes would mean that entities that work with crypto firms will have to move their clients’ holdings elsewhere.

Proposed Rule Changes by the US SEC

The US Securities and Exchange Commission (SEC) plans to propose new regulations this week that could affect the services crypto firms offer their clients. According to people familiar with the matter, the SEC plans to propose rule changes on Wednesday that could make it harder for crypto firms to hold digital assets for their clients.

Voting Process

A five-member SEC panel will vote on the proposal on Feb. 15 and a majority vote of three out of five is required in order for it to proceed. If passed, the proposal will be voted on officially by the rest of the SEC and amended with feedback if approved.

Potential Impact of New Regulations

If implemented, hedge funds, private equity firms, and pension funds could have a more challenging time working with crypto firms as they are required to use qualified custodians to hold their clients’ assets. Therefore, if this rule passes through all stages, entities that work with crypto firms will have to move their clients’ holdings elsewhere.

Background Information

In 2020, an SEC staff said that they were grappling with who could be a qualified custodian of digital assets and requested public feedback regarding this issue. This proposed change aligns with the agency’s plan to reduce any risks posed by cryptocurrencies in relation to broader financial systems after several spectacular failures from crypto companies occurred in 2022, such as FTX exchange and Voyager Digital brokerages.

Conclusion

After approval from its initial voting process, this proposed rule change must then go through public participation before being voted upon again by all members of the SEC in order for it take effect officially.