SEC obligates US Entities like Exchange Platforms to Enlist Risks Involved in Holding Crypto for other users

Background

In recent times, we saw a huge rise in websites and platforms that aim to offer users a unique terminal where they can transact and invest in various cryptocurrencies. These businesses and/or their agents also offer the service of securing the platform user’s crypto-asset(s) and keeping the cryptographic critical details needed to access the crypto-asset in conjunction with these operations. 

SEC Takes Actions

Securities and Exchanges Commission is looking to include “Section FF to Topic 5 of the Staff Accounting Bulletin Series. This staff accounting bulletin (“SAB”) adds interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets held for their platform users.”

Such roles as performed by various platforms entail technological, legal, and regulatory risks and uncertainties that are not evident in mechanisms to secure assets of the real world that are transacted in fiat currencies.

Associated Risks

Technological risks

There are risks associated with both asset safeguarding and rapidly changing crypto-assets in the market that are absent from other arrangements to safeguard assets for third parties.

Legal Hazards

There are major legal problems regarding how such arrangements would be regarded in a court case coming from an adverse occurrence (e.g., fraud, loss, theft, or bankruptcy) due to the unique nature of the assets and the absence of legal precedent; and

Regulatory Concerns

There are notably fewer regulatory requirements for keeping crypto-assets for platform users or companies, compared to many standard arrangements to secure assets for third parties, resulting in heightened risks to investors in these entities.

Benefits of SEC’s Rules

These risks can have a major influence on the entity’s operations and financial health. Furthermore, it will benefit the investors and users in making sound investment and allocation decisions in the future. 

Further Reading: US Treasury Launches Crypto Awareness Program

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Vidhi Narula