Key takeaways:
- The chief legal officer of Coinbase calls the US SEC’s proposed regulation on custody of financial advisers “misguided.”
- The custodial duties proposal is flexible and adequately secures future investments; this letter urges expansion.
The general counsel of Coinbase has asked the Securities and Exchange Commission (SEC) to make several changes to its proposed rule on registered investment advisers’ (RIAs’) obligations to store client assets with qualified custodians.
Despite the SEC’s recognition of Coinbase Custody Trust Company as a “qualified custodian,” Coinbase claims that the amended RIA custody regulation unfairly singles out cryptocurrency and is based on incorrect assumptions about custodial procedures for securities. Paul Grewal, the chief legal officer at Coinbase, wrote on May 8 that the proposed SEC rulemaking does not adequately protect other asset classes, such as cryptocurrency.
A recognized competent custodian for RIA clients is Coinbase Custody Trust Company. Assets belonging to clients must be safeguarded from potential hazards like bankruptcy and cyberattacks by this custodian. In order to keep the custodial duties proposal flexible and adequately secure future investments, this letter urges its expansion.
An RIA is a business that offers recommendations to customers on securities investments and may manage their investment portfolios. Depending on the value of the assets under management, these companies have SEC or state securities administrator registrations.
Grewal criticized the “Safeguarding Advisory Client Assets, Proposed Rule 223-1” proposed rulemaking in a letter to the SEC, calling it erroneous. Grewal that changes be made to the plan and staff advice, emphasizing the need to protect all asset classes, including crypto assets, which up until now hadn’t been categorized as securities.
Grewal proposes several changes to the regulation to safeguard investors, including classifying state trust firms and other state-regulated financial institutions as qualified custodians, a practice that has long been supported by the SEC and Congress. Additionally, he suggests lifting the prohibition on RIA client trading on cryptocurrency exchanges, which are not qualified custodians, and permitting limited exposure to non-qualified custodians.
This week, the SEC is anticipated to follow the court’s directive and reply to Coinbase’s writ of mandamus. In April 2022, Coinbase filed a lawsuit asking the court to order the SEC to make its position on a petition put forth months earlier public. The exchange included 50 specific inquiries about how particular digital assets should be regulated in the petition.
At the moment, Coinbase is actively looking to expand internationally, with Bermuda or the UAE having the potential to develop into a key hub for Coinbase. Before making its following action, however, the exchange wants clarification on US SEC policy regarding regulating digital assets.
