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- Crypto industry proponents are concerned, the new SEC custody rule change will favor competitors from Wall Street.
- The rule will help curtail excesses from players in the crypto ecosystem.
In what appears to be a response to the calls from industry veterans for a clearer rule, the United States Securities and Exchange Commission (SEC) seems to be heeding the calls with a newly unveiled rule change to asset custody. Earlier this month, the regulator under the leadership of Gary Gensler published a 434-page rule change that will force custody providers to provide evidence that customers’ funds are adequately segregated and thus protected from insolvency.
While the rule change is designed for the entirety of the financial ecosystem, it is also uniquely suited for the crypto ecosystem. According to a Bloomberg report, this rule change will benefit mainstream companies with a vested interest in the nascent crypto ecosystem much more. This positioning was also backed by prominent Ripple advocate and crypto attorney, John Deaton.
Though the proposed rule change is subject to changes following a short period of consultation from the public, many are already positing that the regulator may have an agenda to support top financial services firms already making a dive into the crypto ecosystem.
At the moment, firms like Fidelity Investments, BlackRock, Goldman Sachs Group Inc, and Citigroup amongst others are already exploring new avenues to offer custody services. There are a number of traditional industry players with offshoots that offer similar services. According to experts, these are in a better position to benefit from the rule change. This is because they already have a favorable structure that can adhere to the new rules without so much hassle.
The bigger banks are the logical participants who would potentially benefit from [rule changes], in that they now have a roadmap to what they would need to do to support institutions who want to invest in crypto.
said Jack McDonald, CEO of Standard Custody, whose parent company counts Brevan Howard Asset Management, Soros Fund Management, and Cowen Digital among its investors.
Core Reasons for the SEC Custody Rules
As an emerging offshoot of the financial ecosystem, the crypto ecosystem has proven to be quite unruly in terms of internal operational management. This was mostly exhibited in the build-up to the implosion of FTX Derivatives Exchange, the crypto trading outfit founded by Sam Bankman-Fried.
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The 30-year-old entrepreneur reportedly bankrolled a lot of deals for the exchange’s sister trading firm, Alameda Research with funds running into billions being for the FTX customers. The implosion of the firm came from the failed deals, the bulk of which was for Voyager Digital. According to many of the exchange’s executives, Bankman-Fried did not run the money transfers for approval with the right team, making the whole activity fraudulent.
With the SEC rule change, these excesses will be prevented, but the question now remains whether or not the rules are designed for current players or the emerging ones from Wall Street.
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