SEC to Target Crypto Firms Operating as ‘qualified custodians’ — Report

If a majority of the five-member SEC panel approves the draft plan, it will move on to the next step, which will be examined by other SEC members.

The Securities and Exchange Commission (SEC) of the United States is allegedly set to propose new regulatory changes this week that may affect what services crypto businesses can offer their clients.

According to a Feb. 14 Bloomberg story citing “people familiar with the matter,” the securities regulator is working on a draft proposal that would make it harder for crypto businesses to act as “qualified custodians” for their clients.

This may have an impact on the many hedge funds, private equity firms, and pension funds that collaborate with crypto startups.

According to those mentioned, a five-member SEC panel will vote on whether the proposal advances to the next step on Feb. 15.

A majority vote — three votes out of five — will be required for the remainder of the SEC to vote on the proposal. If it is authorized, the proposal will be revised based on comments.

While the SEC has been deliberating on what should be necessary to be a qualified custodian of cryptocurrencies since March 2019, sources familiar with the topic say it’s unclear what exact improvements the U.S. financial watchdog is looking for.

If the agreement is reached, certain crypto firms may be forced to relocate their customers’ digital asset holdings.

According to the research, these financial institutions may face “surprise audits” relating to their custody arrangements or other implications.

The suggestion for a vote on Wednesday follows a Reuters report on January 26 that claimed the SEC might soon go after Wall Street financial advisers over how they’ve given crypto custody to their clients.

In recent days, the SEC has been investigating Paxos Trust, the stablecoin issuer of Binance USD (BUSD), which they believe issued an unregistered security.

Paxos has stated that they will “vigorously litigate” if required.