U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler pushed back on the idea that crypto exchanges could be safe qualified custodians for investment advisers.
Speaking at an Investor Advisory Committee meeting Thursday, Gensler said a recently proposed rule directing investment advisers to look to qualified custodians for storage of assets – including cryptocurrencies – makes "important enhancements" to existing protection rules. He also said crypto exchanges should not be considered safe under those guidelines.
"Based upon how crypto trading and lending platforms generally operate, investment advisers cannot rely on them today as qualified custodians," Gensler said. "To be clear: Just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is."
The SEC chair pointed to recent bankruptcies in the crypto sector, noting that customers' property held on those platforms are now part of the bankruptcy estate, rather than returning directly to the customers.
"The proposal takes up Congress’s 2010 provision for us to expand the custody rule to cover all of an investor’s assets, not just their funds or securities. Congress granted us new authorities to expand the custody rule in response to the financial crisis and Bernie Madoff’s frauds. The expanded custody rule would help ensure that advisers don’t inappropriately use, abuse, or lose investors’ assets," Gensler said in his remarks.
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