Yesterday, the SEC proposed new rules for crypto companies acting as qualified custodians for institutional funds.
The push for this change in legislation is due to the recent failures of crypto platforms to safeguard users’ assets from both cyberattacks and bankruptcy. The SEC argues that the reckless financial behavior exhibited by FTX, Celsius, and the like might destabilize the economy at large if left unchecked.
However, some crypto platforms have brushed the news off, stating that little or no adjustments would have to be made to their business model in order to comply with the regulation currently in the works.
Steps Already Taken to Protect Funds
In an interview with Bloomberg, Coinbase CLO Paul Grewal stated that not only is the company already compliant with the proposed changes to qualified custodian law – it is also a role model for other crypto platforms.
“I think that when it comes to Coinbase, we see SEC officials recognize that specifically, Coinbase is operating in a qualified manner. In a lot of ways, this is about bringing the rest of the industry to the standard Coinbase has set for itself.”
Grewal followed up with a similar statement on Twitter, commending the SEC for its initiative while reminding the crypto industry that nothing is set in stone yet.
Coinbase Custody Trust Co. is a Qualified Custodian today and will be a Qualified Custodian tomorrow. Today’s proposal from @SECGov does not change this fact. While we commend the SEC for following proper procedures for public rulemaking, today’s proposal is just that-a proposal.
— paulgrewal.eth (@iampaulgrewal) February 15, 2023
Different Business Model
While motivating the SEC’s proposal, the agency’s Chair, Gary Gensler, stated that the move was necessary due to structural issues with how crypto platforms traditionally handle clients’ funds.
“Make no mistake: Based upon how crypto platforms generally operate, investment advisers cannot rely on them as qualified custodians.”
As reported by Bloomberg, the new legal initiative would ensure crypto platforms provide assurances that money-manager client assets are segregated from funds necessary for the platform’s operation, guaranteeing that funds are safe should the platform itself go bust.
However, spokespeople for Coinbase have argued in the past that the company operates differently from competing platforms, a statement now reiterated by their CLO.
Coinbase is, despite its more traditional business methods, not fully safe from possible regulatory action taken by the SEC and others.
For instance, Coinbase’s backing of USDC might draw some fire in the near future, given recent regulatory actions against stablecoins.