Traditional Wall Street investment advisors giving digital asset custody to their customers without the required credentials have been under scrutiny from the U.S. Securities and Exchange Commission (SEC).
According to Reuters, three persons who knew the situation revealed that the SEC’s investigation had been ongoing for several months before the FTX collapse.
The sources said that no one knew about the SEC investigations until now since the agency’s probes are kept secret. SEC’s investigation is mostly on whether or not registered investment advisors complied with standards on the safekeeping of their clients’ crypto holdings.
In addition to meeting the custodial requirements outlined in the Investment Advisers Act of 1940, investment counselling companies are required by law to be “qualified” to provide custody services to customers.
CoinCulture contacted the SEC for comment, but no answer was given right away.
If adopted, our best ex rule would help ensure that brokers have policies & procedures in place to uphold one of their most important obligations: to seek best execution when trading securities, whether equities, fixed income, options, crypto security tokens, or other securities. pic.twitter.com/gZdIEcNbVY
— Gary Gensler (@GaryGensler) January 24, 2023
In a letter to Reuters, Anthony Tu-Sekine, head of Seward & Kissel’s Blockchain and Cryptocurrency Group, said, “This is an obvious compliance concern for investment advisors. “This is an obvious compliance issue for investment advisers. If you have custody of client assets that are securities, then you need to custody those with one of these qualified custodians.”
The Wall Street Blockchain Alliance (WSBA) sent a letter to the SEC on November 15 inquiring about the applicability of the “Custody Rule” to digital assets and whether or not it would be subject to any changes.
The securities regulator, however, has increased its crypto enforcement activities throughout the year. Their “Crypto Assets and Cyber Unit” team grew by approximately 100% in May 2022.
The company has been kept quite busy with the continuing litigation against Ripple Labs and the activities related to the demise of FTX and its creator Sam Bankman-Fried.
