The SEC’s proposed custody rule faces pushback from Coinbase, a16z and the Blockchain Association – Cryptopolitan

The SEC’s proposed change to the custody rule, which would allow the regulator to oversee all assets under adviser supervision, has faced opposition from Coinbase, Andreessen Horowitz (a16z) and the Blockchain Association. Each organization submitted a 20-page letter outlining concerns and potential problems with the proposal.

Coinbase’s stance

Coinbase expressed in the letter that it would support the proposal if the SEC provided guidance to employees. The company pushed for state-regulated trusts to continue to be recognized as qualified trustees, arguing that state financial regulators are more responsive to technological and economic change, which promotes competition, efficiency and investor protection.

The exchange also took issue with the SEC’s crackdown on registered investment advisers (RIAs), which requires them to have client trades at all times, which Coinbase sees as a restriction on crypto-asset trading that doesn’t take into account the benefits of pre-funding transactions as a real-time settlement .

Coinbase is currently in a legal battle with the SEC over the definition of securities, and the company has sued the SEC seeking regulatory clarity on crypto.

Andreessen Horowitz’s concerns

A16z called for the creation of a “broad and robust regime for self-custody of crypto and other assets by RIAs.” In order for the venture capital firm to support the proposed rule, the SEC must address serious concerns and make exceptions for crypto assets.

The firm questioned whether the SEC has considered the implications of the security rule for cryptoassets with participatory features such as staking or voting. A16z also argued that preventing RIAs from trading cryptoassets on centralized platforms would deprive clients of the most liquid trading venues and make it difficult for RIAs to fulfill their fiduciary duty of best execution.

To make the proposed rule work for crypto, a16z believes that a self-custodial exception must cover all assets for which there is no suitable qualified custodian, and allow RIAs to deposit crypto assets without violating the security rule.

The Blockchain Association’s Criticism

The Blockchain Association argued that the proposed rule’s attempt to limit investment activity for digital assets is inconsistent with the principles-based approach set forth by Congress in the Advisers Act. The need for “qualified custodians” will prevent digital asset custodians from continuing to provide custody services, reducing protections for advisory clients.

The association argued that the SEC does not recognize the technological differences between digital assets and other asset classes. It also argued that the SEC is exceeding the authority it received from Dodd-Frank’s Advisers Act amendments with the current framework for the proposed rule. The rule would reduce protections for customers investing in digital assets due to the segregation requirement, as it applies to state-controlled banks, which would impose a regulatory regime based on ambiguous state law principles.

Both the Blockchain Association and Coinbase expressed concern about comments about changing the definition of state-controlled financial institutions.

According to the SEC’s website, a number of other companies and general counsel submitted comments on the proposed rule. Public comments were open for 60 days after publication of the proposed release in the Federal Register.