The proposal is “unlawful” and could impact the crypto industry, one member said.
Cover art/illustration via CryptoSlate
The Blockchain Association said May 8 that it objects to a custody rule change proposed by the U.S. Securities and Exchange Commission (SEC).
Industry group objects to SEC proposal
Marisa Tashman Coppel, Policy Counsel for the Blockchain Association, warned that the SEC’s rule change could “drastically curtail” crypto investment.
She said, on behalf of the Blockchain Association:
“The proposed rule deviates from the SEC’s obligation … to take an asset-neutral approach. … Rather than allowing for flexibility … the proposed rule discourages custodians and advisers from offering digital asset-related services. “
Coppel explained that the proposal prevents investment advisers from engaging in self-custody of assets. She said that the new rule could make acting as a qualified custodian unaffordable and could prevent advisers from providing the safest custody possible.
She added that the rule change could restrict certain activities such as staking and trading if those services are not operated by a central intermediary or qualified custodian.
Coppel also suggested that digital assets allow for new custody models, such as the decentralized custody model called multi-party computation (MPC). This model, which is used by Fireblocks, may not be permissible under the proposed rules, Coppel said.
Coppel added that rules around indemnification (i.e., loss coverage) and asset segregation could cause difficulties for advisers. The fact that the proposed rule applies broadly to all assets without authorization from U.S Congress additionally makes the proposal an “unlawful expansion” of the SEC’s authority, Coppel concluded.
These statements are Coppel’s explanation of a longer letter published by the Blockchain Association Itself, which represents over 100 member companies.
Controversy began in February
The controversy around the rule change first began on February 15, when the SEC proposed the new rule. SEC commissioner Hester Peirce soon expressed her dissent toward the proposal and cited its potential impact on crypto as one concern.
However, several leading crypto platforms, including Coinbase, BitGo, Anchorage Digital, and Gemini have endorsed the proposal. Those companies suggested they were already compliant with the proposed rule change and would not be affected by the change.
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