The Securities and Exchange Commission (SEC), Wallstreet’s top financial regulator, has recommended that businesses that provide assets for fund managers be subject to stricter regulations. This could further limit crypto platforms like Coinbase and Kraken, as the industry is under constant pressure from regulators.
SEC’s latest crypto crackdown
The SEC voted 4-1 Wednesday to approve a rule that would allow investment advisers to hold more assets, including cryptocurrency, using qualified custodians. If the new rule is passed, it will expand the scope and coverage of the safeguarding mandate that covers all assets, including cryptocurrency, that financial advisors are entrusted.

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Qualified custodians are banks, trust companies, broker-dealers, and other traditional types of businesses. Coinbase, a trading platform, has offered the service for several years despite this. This is because of the unique requirements involved in protecting assets such as bitcoin from being stolen, or hacked.
This action poses a new threat to the custody policies for cryptocurrency exchanges, as other federal regulators actively block custodians like banks and banks from keeping consumer cryptocurrency holdings. The modifications are also made at a time when SEC is intensifying its enforcement efforts.
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Despite the fact that the proposal doesn’t single out cryptocurrency businesses, SEC Chair Gary Gensler was quoted saying:
Investment advisers should not rely on crypto platforms as qualified custodians. This is clear from how they operate. Although some platforms claim to be able to hold crypto assets, this does not necessarily mean that they are qualified custodians.
Coinbase’s website claims that the firm is a qualified crypto custodian. It has thousands of institutional clients who use its Prime platform to protect their funds. The company’s custodial services generated revenue of $68.4 millions in the first nine months 2022, 21% more than the previous year.
Crypto’s Growing Regulative Concerns

Hester Peirce, the SEC commissioner, stated that Gensler’s alleged anticrypto stance was not supported by the Commission. She also noted that the Commission doesn’t have the authority to regulate custodians. Peirce also questioned the authority of the Commission to regulate custodians.

My statement today on the custody proposal. We look forward to receiving comments from the public. This one affects crypto, among many other issues: https://t.co/1eWT6P45Ya
— Hester Peirce (@HesterPeirce), February 15, 2023
The Dodd-Frank Act of 2010 was passed following the previous financial crisis. It gave Gensler’s agency the authority to regulate the wider crypto market. Although it is believed that the SEC has been investigating crypto custodial concerns in recent months, officials at the SEC claimed that they have been working on this plan for years and not because of any recent dramas surrounding cryptocurrency.
Also read: U.S. Voters can now donate in crypto to politicians; however, conditions apply

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