NEW YORK (Reuters) – The U.S. Securities and Exchange Commission (SEC) is investigating whether registered investment advisers meet rules for custody of their clients’ crypto assets, three sources familiar with the investigation said. told Reuters.
The SEC has for months questioned the adviser’s efforts to comply with SEC rules regarding the custody of customers’ digital assets, but the investigation has accelerated following the blowup of cryptocurrency exchange FTX. said the source. He spoke on condition of anonymity because the investigation is private.
Advisors who manage their clients’ digital assets typically use third parties to store them.
SEC enforcement staff have asked investment advisers for more details about what the firm has done to evaluate custody of platforms including FTX, one of the sources said. A broad enforcement sweep shows the scrutiny of the crypto industry by top US market regulators is extending to more traditional Wall Street firms.
An SEC spokeswoman declined to comment.
By law, investment advisors may not hold client funds or securities unless they meet certain requirements to protect the assets. One of these requirements requires that advisors hold such assets in companies that are considered “qualified custodians,” although the SEC does not maintain a specific list and companies does not offer a license to become such a custodian.
The SEC investigation shows regulators are targeting long-standing problems for traditional companies that have been looking for ways to invest in cryptocurrencies, lawyers told Reuters. Regulatory accounting guidance has made many lenders too capital-intensive to hold digital assets on behalf of their clients, limiting advisors’ options for seeking custodians.
“This is a clear compliance issue for investment advisors. If you have client assets that are securities in custody, they should be held at one of these qualified custodians,” Seward and Anthony Tu-Sekine, Head of Blockchain and Cryptocurrency at Kissel said. group.
“I think it would be easy for the SEC to do.”
Under Democratic leadership, the SEC has made cryptocurrency a priority area for enforcement and nearly doubled the size of its cryptocurrency team last year. But regulators are pushing crypto after a string of industry-wide bankruptcies and the U.S. indictment of FTX founder and former head Sam Bankman-Fried for committing fraud. are under new pressure to he pleaded not guilty.
Two Bankman-Fried colleagues, former Alameda Chief Executive Officer Caroline Ellison and former FTX Chief Technology Officer Gary Wang, pleaded guilty to deceiving investors and agreed to cooperate. bottom.
The SEC is also investigating the details of the due diligence efforts of FTX equity investors when investing in cryptocurrency exchanges.
Reporting by Chris Prentice, New York Additional reporting by Elizabeth Howcroft, London and Hannah Lang, Washington Editing by Megan Davies and Leslie Adler
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