Crypto Exchanges May Not Be Qualified Custodians

Crypto Exchanges May Not Be Qualified Custodians– On March 2, 2023, Gary Gensler spoke about qualified custodians and cryptocurrency exchanges in front of the Senate Banking Committee. Gensler addressed a number of topics pertaining to the regulation of cryptocurrencies and digital assets throughout the hearing.

The custody of digital assets was one of the main challenges that Gensler addressed. He mentioned that investment advisers are obligated by federal securities rules to hold the securities and cash of their customers with competent custodians. He did, however, raise the possibility that many bitcoin exchanges would fall short of the requirements for becoming competent custodians.

Gensler specifically voiced worries regarding the security of the custody procedures used by cryptocurrency exchanges.

Gary Gensler, the chair of the US Securities and Exchange Commission (SEC), recently suggested that cryptocurrency exchanges may not meet the standards of “qualified custodians” required by federal securities laws.

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Under federal securities laws, investment advisers are required to hold their clients’ securities and cash with qualified custodians. These custodians must meet certain requirements, such as maintaining separate client accounts and providing regular account statements.

According to Gensler’s remarks, cryptocurrency exchanges might not satisfy these criteria, which could have a big impact on how the crypto business is regulated. Many cryptocurrency exchanges now store their customers’ funds in “hot” wallets, which are online and potentially susceptible to theft and hacking.

The security of customer assets and the danger of theft and hacking might both increase if the SEC mandated that bitcoin exchanges utilize certified custodians. It might also put a heavy burden on cryptocurrency exchanges since they might not have the infrastructure or resources necessary to meet the qualifications of a qualified custodian.

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Gensler’s remarks emphasized the need for increased regulatory transparency and control in the cryptocurrency market, especially as more investors and institutions move to invest in digital assets.

Gensler’s comments suggest that the SEC may be considering requiring cryptocurrency exchanges to use qualified custodians to hold customer assets.

This could increase the security of customer assets and reduce the risk of hacks and theft, but it could also place a significant burden on crypto exchanges, which may not have the resources or infrastructure to meet the requirements of a qualified custodian.

Gary Gensler, the chair of the U.S. Securities and Exchange Commission (SEC), rejected the notion that cryptocurrency exchanges might serve as reliable certified custodians for investment advisers.

Addressing on Thursday during a meeting of the Investor Advisory Committee, Gensler said a recently proposed rule directing investment advisers to look to qualified custodians for storage of assets – including cryptocurrencies – makes “important enhancements” to existing protection rules. He also said crypto exchanges should not be considered safe under those guidelines.

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