SEC Proposes Regulation to Expand Crypto Custody Rules

• The SEC Chair, Gary Gensler, declared that crypto trading platforms cannot act as qualified custodians.
• The SEC has proposed a federal regulation to expand custody rules and require exchanges to register as clients asset holders.
• Gensler also mentioned that predictive data technologies could create „inherent conflicts of interest“ related to advisers‘ demands on their clients.

SEC Chair Declares Crypto Trading Platforms Cannot Act as Qualified Custodians

The U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler recently declared that lending platforms and crypto exchanges cannot act as qualified custodians when it comes to investors’ assets. He clarified that investors must comply with the current custody rule, which requires their funds and securities be held with “qualified custodians” regulated by the SEC under the U.S Investment Advisers Act of 1940.

SEC Proposes Federal Regulation To Expand Custody Rules

In order to strengthen investor protection, the SEC has proposed a new federal regulation that would expand existing custody rules to include cryptocurrencies and require exchanges to register in order to hold client assets. According to the filing, this proposal is designed “to recognize the evolution in products and services investment advisers offer to their clients” and “strengthen and clarify existing custody protections”.

Gensler Addresses Conflicts Of Interest Related To Advisers‘ Demands On Their Clients

Chairman Gensler also addressed potential conflicts of interest related to advisers‘ demands on their clients by suggesting predictive data technologies might be used for such purposes. He asked the agency’s staff for advice on how best address these issues in future regulations or advisories from the commission itself.

Recent Regulatory Enforcement Actions By The SEC Against The Crypto Industry

The recent statements made by Chairman Gensler are strongly connected with recent enforcement actions taken by the regulatory agency against different entities in the crypto industry worldwide, such as Terraform Kabs and Do Hyeong Kwon who were charged with „orchestrating a multi-billion dollar fraud“.


These latest declarations made by Chairman Gensler clearly demonstrate his intention of ensuring investor protection is taken seriously within the crypto industry, while at same time providing guidance on how best address potential conflicts of interest between advisers and their clients related predictive data technologies use cases.