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The U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have explained in a joint statement that there are a number of questions that need to be answered before crypto companies will be approved as broker-dealers.
The statement issued on Monday covered a number of different factors that affect the approval process of a broker-dealer application by a company that deals in digital assets, including custody and whether the assets are treated as securities under the Securities Investor Protection Act (SIPA) of 1970. Investor protection and broker-dealer regulation were also under consideration during said process.
The statement by the SEC Division of Trading and Markets and FINRA’s office of general counsel says that the application of federal securities laws, FINRA rules and other regulators to digital assets “raise novel and complex regulatory and compliance questions and challenges.”
The statement goes on to say:
“The ability of a broker-dealer to comply with aspects of the Customer Protection Rule is greatly facilitated by established laws and practices regarding the loss or theft of a security, that may not be available or effective in the case of certain digital assets.”
It is also implied that a broker-dealer hoping to gain custody of digital asset securities must comply with the SEC’s Customer Protection Rule, which safeguards customer securities and funds held by a broker-dealer. The Customer Protection Rule is also responsible for preventing investor loss and enables the SEC to better regulate the entities as well as prevent anti-investor business practices.
The statement says:
“Put simply, the Customer Protection Rule requires broker-dealers to safeguard customer assets and to keep customer assets separate from the firm’s assets, thus increasing the likelihood that customers’ securities and cash can be returned to them in the event of the broker-dealer’s failure.”
Do Regulators Finally Realize that Crytpcurrencies Are Here to Stay?
We have started to see a more thorough guidance for entities dealing in digital assets as the activity in the crypto sector is increasing. Bitcoin and other major cryptocurrencies are showing signs of another bull run and Facebook’s recent announcement of its own stablecoin Libra is forcing regulators to finally accept the fact that digital assets are here to stay. They can no longer be banned, kept under covers and away from public access.
The statement by the SEC shows that resolving the issues concerning digital assets are on the to-do list. However, the statement fails to clarify exactly how to comply with the custody requirements. Yet, the statement should be taken as an invitation for more dialog as some progress in the right direction is still better than years of denial.