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US Securities Regulator Probes Wall Street over Crypto Custody: Report

According to sources, the regulator is investigating registered investment advisors for how they provide crypto custody to their clients.

The Securities and Exchange Commission (SEC) of the United States has been investigating traditional Wall Street investment advisors who may be offering digital asset custody to their clients without the necessary qualifications.

According to a Jan. 26 Reuters report citing “three sources with knowledge of the inquiry,” the SEC’s investigation has been ongoing for several months but accelerated following the collapse of cryptocurrency exchange FTX.

According to the sources, the SEC’s investigations were previously unknown because the agency’s inquiries are not made public.

According to Reuters, the SEC is focusing much of its investigation on whether registered investment advisors have followed the rules and regulations governing the custody of client crypto assets.

Investment advisory firms must be “qualified” by law to provide custody services to clients, in addition to adhering to the custodial safeguards outlined in the Investment Advisers Act of 1940.

Cointelegraph contacted the SEC for clarification, but did not receive an immediate response.

According to Anthony Tu-Sekine, who leads Seward and Kissel’s Blockchain and Cryptocurrency Group, in a note to Reuters, the recent revelation suggests the SEC hasn’t turned a blind eye to traditional investment firms in the digital asset space:

“This is an obvious compliance issue for investment advisers. If you have custody of client assets that are securities, then you need to custody those with one of these qualified custodians.”

“I believe it’s a simple call for the SEC to make,” he added.

The Wall Street Blockchain Alliance (WSBA) wrote to the SEC on November 15 to ask for clarification on what potential amendments, if any, apply to the “Custody Rule” as it relates to digital assets.

Cointelegraph has contacted the WSBA to see if they have received a response from the SEC.

Meanwhile, the Securities and Exchange Commission has increased its crypto enforcement efforts this year. It nearly doubled its “Crypto Assets and Cyber Unit” team in May 2022.

It has also been kept busy by the ongoing lawsuit against Ripple Labs, as well as actions related to FTX’s collapse and its founder Sam Bankman-Fried.


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