The Securities and Exchange Commission (SEC) recently proposed a new custody rule that has been met with criticism from the cryptocurrency industry. According to Paul Grewal, the Chief Legal Officer of Coinbase, the proposed rule unfairly targets cryptocurrency and could stifle innovation in the industry.
The proposed rule, which is part of the SEC’s broader regulatory framework for investment advisers, would require firms to undergo annual surprise audits by an independent public accountant if they have custody of client assets. This includes digital assets such as cryptocurrencies.
Grewal argues that the proposed rule is unfair because it places a disproportionate burden on cryptocurrency firms compared to traditional investment advisers. He notes that traditional advisers are not subject to surprise audits if they use a qualified custodian to hold client assets, whereas cryptocurrency firms are required to undergo audits regardless of whether they use a qualified custodian or not.
Furthermore, Grewal argues that the proposed rule could stifle innovation in the cryptocurrency industry by making it more difficult for firms to offer new products and services. He notes that the industry is still in its early stages and that new products and services are constantly being developed. However, the proposed rule could make it more difficult for firms to innovate by increasing compliance costs and creating uncertainty around regulatory requirements.
Grewal also points out that the proposed rule could have unintended consequences for investors. He notes that surprise audits could be disruptive to clients and could lead to increased costs for investors. Additionally, he argues that the proposed rule could create a false sense of security for investors by giving them the impression that their assets are safer when held by a qualified custodian, even though this may not necessarily be the case.
Overall, Grewal’s criticisms of the SEC’s proposed custody rule highlight the challenges facing the cryptocurrency industry as it seeks to navigate a complex and rapidly evolving regulatory landscape. While it is important for regulators to ensure that investors are protected, it is equally important to avoid stifling innovation and creating unintended consequences for investors. As the industry continues to mature, it will be important for regulators to strike the right balance between these competing interests.
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- Source: Plato Data Intelligence: PlatoData