SEC Faces Criticism Over New Crypto Custody Regulations

SEC Faces Criticism Over New Crypto Custody Regulations

The proposed crypto custody rules by SEC face opposition from Blockchain Association and a16z, highlighting regulatory challenges in the industry.

The United States Securities and Exchange Commission (SEC) finds itself in the crosshairs of two leading figures in the crypto industry. A proposed strengthening of rules governing crypto asset custody has drawn stern objections from both the Blockchain Association, an industry advocacy body, and Andreessen Horowitz (a16z), a top-tier venture capital fund with a focus on Web3. Both organizations used their letters to the SEC to question the legal underpinning and potential consequences of the proposed regulations.

Blockchain Association & a16z Challenge SEC

Firing off against the SEC’s proposed changes, the Blockchain Association and a16z submitted detailed letters outlining their opposition. The Blockchain Association’s letter, submitted on May 8, the last day for public commentary on the proposal, listed over a dozen points of contention with the SEC’s proposed changes. Similarly, a16z showed its disapproving stance to the SEC a few days earlier on May 5.

The Blockchain Association’s letter raised concerns about the SEC’s regulatory overreach, potential restrictions on advisors’ ability to trade on crypto exchanges, and increased risk exposure for investors. Marisa Tashman Coppel, a policy lawyer representing the association, took to Twitter to express her concern that the rule, if implemented, could severely hamper investment in digital assets, even going as far as to label the proposed rule illegal.

On the other hand, a16z’s letter, while echoing similar concerns, concentrated more on the potential fallout for registered investment advisors. The firm highlighted the risk of these advisors being barred from dealing in crypto and potential violation of the SEC’s duty of care norms. Miles Jennings, a16z’s general counsel, didn’t hold back, criticizing the SEC proposal as an ill-conceived, thinly-veiled assault on crypto in a Twitter post.

SEC Proposal: A Deeper Look and Internal Dissension

The proposed amendments by SEC aim to enforce tighter controls on investment advisors in relation to asset custody, including crypto. Key measures include mandatory segregation of assets and annual audits of custodians by public accountants, among other transparency-enhancing steps.

Gary Gensler, the SEC Chair, has been explicit in his targeting of crypto exchanges through these proposed changes. Moreover, he argues that several crypto trading platforms purporting to offer custody services do not meet the criteria of “qualified custodians.”

This hardline stance, however, doesn’t seem to enjoy unanimous support within the SEC. Commissioner Hester Pierce expressed her reservations regarding the practicality, scope, and targeted nature of these rules towards crypto and crypto-related entities.

While the SEC has yet to endorse these proposed changes, the vehement opposition from industry players like the Blockchain Association and a16z ensures that the final decision will be closely watched. The discourse around this proposal illustrates the regulatory challenges that the burgeoning crypto industry continues to grapple with.


About Dren Hima

Being exposed to the crypto industry for the last few years has given me valuable experience with market analyses (technical and fundamental) as well as blockchain technology in general. As the content editor and a market analyst of Walletor, I strive to share the latest developments of the crypto industry, while also providing a unique educational experience for all Crypto & FinTech enthusiasts.