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SEC Chair Says Crypto Exchanges May Not Be 'Qualified Custodians'

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U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler has taken aim at crypto exchanges once again by questioning their status as «qualified custodians» for investment advisory funds.

Gensler's statement—part of prepared remarks before a virtual public meeting on Thursday—follows a February 15 vote by SEC commissioners to expand the asset custody rules to include cryptocurrencies.The vote, approved 4-1 by its commissioners, tasked investment advisors with sourcing qualified custodians to store investors' assets, including cryptocurrencies.Advisors must maintain custody accounts for stocks, bonds, or mutual funds.

Gensler said the new rules provide «important enhancements» to existing protection rules. «Based upon how crypto trading and lending platforms generally operate, investment advisers cannot rely on them today as qualified custodians,» Gensler said. «To be clear: Just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is.» The SEC Chair said that recent crypto bankruptcies highlighted the need for updated custody rules: «When these platforms fail—something we’ve seen time and again—investors’ assets often have become the property of the failed company, leaving investors in line at the bankruptcy court.» The latest remarks by Gary Gensler could add further confusion for institutional investors and advisors in regard to cryptocurrencies held with exchanges.

There are still questions about which exchanges make the cut as qualified custodians and which may need to comply with rules to qualify.

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