SEC Chair Gensler Says Crypto Exchanges May Not Be ‘Qualified Custodians’

The State of crypto is presented by Tron connecting the world to the power of Cryptocurrency Securities and Exchange Commission chaired Gary Gensler's pushing back against the idea that crypto exchanges could be qualified as safe custodian as safe qualified custodians for investment advisor. Joining us now to discuss is Coindesk global policy and regulation managing editor Nick Day, who's also the editor of Coindesk State of crypto newsletter and you know, it's something you need to read because look at him, he's rocking the consensus 2023 golf shirt, uh which I did not get some reason must be lost or I am not important enough. Nonetheless, welcome, Nick Nick the master. He is a good morning and just get clarity. This is 22. Oh, that's a 22 1. Ok. Well, I do. Oh, well, so, so be it. Well, anyway. Yeah. Yeah. Well, I, I think if you, if you get 10 scoops like you have, you do get um a free shirt. Uh So gentler said that uh at an investor advisory committee uh thing yesterday, what, what, what exactly did he say about uh uh crypto exchanges serving as custodians? Yeah. So the context here is he was talking about a recently proposed sec rule that would if adopted, require investment advisor to uh custody funds with qualified custodians. And, you know, typically these are uh you know, chartered entities, a lot of crypto exchanges have said that they believe they are qualified custodians in the wake of that proposal. What Gez has been saying is that uh you know, literally quote just because an exchange or trading platform says it's a qualified custodian, doesn't mean it is. He's kind of pushing back on this idea that, you know, some of these uh entities that are primarily chartered as money transmitting services in states uh could be qualified custodians and warning that investment advisers have to use uh you know, safe companies. Um You know, this is not a new refrain. He's said this before and um a lot of, you know, what it is comes or what it comes down to is a concern that if a company goes bankrupt, if it's a qualified custodian, it might have, you know, rules and regulations and scenarios in place where customer assets are segregated from company assets and uh you know, not going to be part of the bankruptcy estate, but if it's not a qualified custodian in that manner, uh what might happen is what we're seeing with Celsius and Voyager and all these other companies where the customer assets are part of the bankruptcy estate and the customers themselves have to wait for the bankruptcy process to complete before they can recover any part of their funds. Separately. Nick Representative Patrick mchenry and Senator Cynthia Lomis have teamed up on a letter questioning regard uh regulators about crypto accounting policy. What what are the details on that? Yeah, so this is also tied to a different sec uh thing. So um last year, the SCC came out with something called a staff advisory bulletin number 1 21 which basically directed uh certain entities to mark crypto assets as part of their own balance sheets or being on their own balance sheets, which is slightly different from how other assets are treated. What Senator Lois and Representative mchenry did yesterday was send a letter questioning, uh you know, whether that is safe and also asking bank regulators how they're handling this because it is different from, you know, how they've approached it in the past. And indeed, when this sec proposal came out last year, uh fed Chair Jerome Powell even said that they have to look at that and review it because it is uh you know, different from what their own, you know, precedent looks like. So, uh we'll wait and see what the results are from that, what the regulators say. All right. And finally, you've been monitoring that Voyager digital hearing uh that began yesterday and into day two. What update do you have on that? So this is a hearing to decide whether or not the deal for Binance us to acquire Voyager assets will go through. It began at 10 a.m. Eastern yesterday, it ended at around 7 p.m. It will kick off again today at 10 a.m. Eastern. So in about, you know, 15 minutes or so, um you know, the judge has pushed back against some of the objections from regulators like the SEC. Uh he, you know, explicitly told the SEC that he's not going to hold off on this deal because the SEC may have a problem and said that there isn't enough guidance for the SEC to make a case at this point on what some of its concerns are. So, you know, the big hurdles right now seem to be regulatory pushback and the judge does not seem to be buying into it at this point which suggests that the deal may get approved at the end of this hearing or after the judge has had time to, you know, review it all. But, um, you know, 97% of Voyager creditors have voted in favor of the deal. And, um, you know, so if you're a Voyager creditor, you might receive up to 73% of your assets. And so far all signs again, the hearing is still ongoing, but so far all signs seem to suggest the judge is inclined to support this. Yeah, interesting to hear what the judge had to say. I saw that he was absolutely shocked by the S CCS objection to the deal and thought that the objection was weird uh and felt that it might have been just a way for them to raise issues without ever actually really giving guidance uh to folks on what is the security and what's not in terms of, you know, cryptocurrencies. All right. Thank you so much, Nick for the update that was coin desk managing editor of global policy regulation. Nick Day. Don't forget to sign up for the state of crypto newsletter on coins dot com.