Coinbase, a leading cryptocurrency exchange, has criticized the proposed updated RIA custody rule by the Securities and Exchange Commission (SEC). Although the SEC recognizes Coinbase Custody Trust Company as a “qualified custodian,” the exchange argues that the updated rule unfairly targets crypto and makes incorrect assumptions about custodial practices based on securities. In a letter dated May 8, Coinbase’s chief legal officer, Paul Grewal, stated that the proposed SEC rulemaking fails to protect other asset classes, such as cryptocurrencies.
The SEC’s updated RIA custody rule aims to ensure that investment advisers have proper safeguards in place to protect their clients’ assets. The proposed rule would require investment advisers to use a “qualified custodian” to hold client assets, including securities, cash, and other assets. However, Coinbase argues that the rule is too focused on securities and does not adequately consider the unique characteristics of cryptocurrencies.
Coinbase’s letter to the SEC also notes that the proposed rule does not account for the fact that cryptocurrency custodians face different risks than traditional custodians. For example, cryptocurrency custodians must protect against the risk of hacking and theft, which is not a concern for custodians of traditional assets. Coinbase argues that the SEC should work with the cryptocurrency industry to develop tailored regulations that address these unique risks.
Coinbase is not alone in its criticism of the SEC’s updated RIA custody rule. Other industry players have also raised concerns that the rule could stifle innovation in the cryptocurrency space. Some argue that the rule could make it more difficult for investment advisers to offer cryptocurrency products to their clients, which could limit the growth of the industry.
Despite these concerns, the SEC has not yet indicated whether it will revise the proposed rule. Investment advisers should continue to monitor the situation and be prepared to comply with the updated RIA custody rule if it is adopted in its current form.