The crypto community and several subcommittee chairs from the United States House of Representatives Financial Services Committee, led by Chair Patrick McHenry, have expressed their disapproval for the Securities and Exchange Commission (SEC) proposed advisory clients custody rule. The rule, known as the registered investment adviser (RIA) rule, aims to increase the requirements for qualified custodians of client assets. However, they argue that the SEC has overstepped its authority, extending its reach to assets beyond its jurisdiction, such as art, cash, commodities, and nontraditional assets.
Furthermore, the representatives claim that the proposed rule could be burdensome on the banking industry, undermining its core function – holding cash. The rule, they say, deviates from the standard industry practice, which could lead to significant costs for the banks. The letter also highlights that by imposing custody rules on entities already supervised by other regulators, the SEC would be encroaching on the territories of these regulators, potentially causing confusion and conflict.
The digital asset market could be hit harder by these custody rules, given that entrepreneurs and businesses within the market are already struggling to find banks that would hold their assets. While digital asset entities often turn to state-chartered banks and trusts for banking services, the proposed rule pushes toward federally chartered entities, which could create complications and reduce competition.
The interaction between the SEC’s proposed rule and Staff Accounting Bulletin 121 could create even more disadvantages for the banking sector. Industry participants like the Blockchain Association and the venture capital firm Andreessen Horowitz have also criticized the rule for its potential negative impacts on the banking and digital asset industries.
Moreover, Coinbase chief legal officer Paul Grewal has requested changes to the proposal in a letter to the SEC, emphasizing the need to address concerns and revise regulations that could hamper the growth and innovation of digital asset markets.
In conclusion, while the SEC’s proposed RIA rule intends to strengthen safeguards involving the custody of client assets, the negative consequences it could bring to the banking industry and digital asset ecosystem may outweigh the benefits it brings. Therefore, a reconsideration of the proposal and potential adjustments could be the most feasible and mutually beneficial path forward.
Source: Cointelegraph
