The Securities and Exchange Commission (SEC) just voted to propose new amendments affecting rules around crypto asset custody in the United States – and commissioner Hester Peirce (aka “Crypto Mom”) is not a fan.
Peirce believes the proposed rules could leave crypto investors more vulnerable to theft and fraud, contrary to their intent.
Crypto Mom’s Criticisms
The rule change in question would modify the Commission’s custody rule to “amend certain related recordkeeping and reporting obligations” with the goal to “enhance protections of customer assets managed by registered investment advisers,” according to the SEC’s press release on Wednesday.
The amendments would also “expand the scope” of its rules to apply to assets beyond just client funds and securities, and include all client assets overseen by an investment adviser – such as cryptocurrencies.
In a separate statement, SEC chairman Gary Gensler said that investment advisers would be required to keep users’ crypto with “qualified custodians.”
“Beware: even if a crypto company claims that they custody your assets, it’s not the same as qualified custody,” said Gensler.
Peirce, however – the only commissioner to object to the amendments – believes the rule will create new risks for crypto holders as it caused the number of qualified custodians to shrink. Such rules, she said, will cause investors to remove their assets from custodians that already have safeguarding procedures in place.
Peirce also took issue with the assertion in the SEC’s release that “most crypto assets are likely to be funds or crypto asset securities covered by the current rule.” In Peirce’s view, it is not true that most crypto assets are securities, despite chairman Gensler’s claims to the contrary.
“More generally, the sweeping “just about every crypto asset is a security” statements also seem to be part of a broader strategy of wishing complete jurisdiction over crypto into existence,” she added.
The SEC’s Jurisdiction
Questions about the SEC’s authority over crypto have ballooned since last Thursday when the commission laid charges against Kraken for not registering its staking-as-a-service product as a securities offering. Crypto Mom also objected to that enforcement action, believing the SEC had given Kraken no workable pathway to registration.
The following week, the SEC sent a Wells notice to Paxos threatening to sue the company for possibly conducting an unregistered securities sale in the form of BUSD.
Coinbase has issued a statement arguing that neither Kraken’s service, nor stablecoins, qualify as securities under the Howey Test.
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