The US Securities and Exchange Commission earlier revised a rule that now requires Registered Investment Advisors (RIA) to hold their clients’ assets only at qualified custodians, also referred to as QCs. Coinbase has now come out to comment on the proposal put forward by the SEC.
Paul Grewal, the Chief Legal Officer at Coinbase, has highlighted that the development is nothing but a misguided proposal that needs a lot of improvements.
To start with, the Commission should look into the way it defines qualified custodians. According to Paul’s statement, the SEC must define state-regulated and state-trust financial institutions under the category of QC.
The mechanism is already in place and working fine. Any change could have the potential to disrupt long-standing Congressional and SEC policy.
Second, RIAs will lose the opportunity to trade on crypto exchanges that do not qualify as QCs. This kind of ban is likely to hurt their clients and, thereby, how RIAs handle and invest their funds. Agreed, this sounds unfair, even from Coinbase, considering there is nothing wrong with transitioning to qualified QCs.
However, the crypto venture has countered it by adding that the SEC may want to consider limited non-QC exposure. It will not hamper the functioning or trading activities of RIAs, allowing them to trade crypto assets even on non-QC platforms.
Finally, Paul has recommended that the SEC tailor its standards and rules based on asset class and client type. It will give clients more power to negotiate their own contracts. Overall, a tailored approach by the SEC will not disrupt the current framework between custodians and their clients.
Paul has extended support to the SEC on behalf of Coinbase, saying that they look forward to engaging with the Commission to get the process of public rulemaking right so that it only brings clarity to the market.
Headquartered in San Francisco, Coinbase has over 3,000 cryptocurrencies listed on the platform, with the option to choose from more than 150 trading pairs. It is one of the few crypto exchange platforms to record 56 million verified active users, making it the most valuable public company in the US.
What makes Coinbase an interesting platform is that the API can be built by developers, particularly to record historical price information and real-time data on crypto.
Paul has defined the revision as misguided, stating three ways in which the proposal can be improved. The SEC has yet to respond to their comments. This includes more comments like revising the proposal to allow RIS custody under special circumstances, modifying external reconciliation requirements, and directing staff to modify guidance related to accounting to enhance custody protections.
