Coinbase has requested specific changes to the proposed rule regarding registered investment advisers’ (RIA) responsibilities to hold client assets at qualified custodians. Despite the United States Securities and Exchange Commission (SEC) recognizing Coinbase Custody as a “qualified custodian,” the crypto exchange believes that the revised RIA rule makes “unjustified assumptions about custodial practice.”
Necessary Revisions
The chief legal officer of Coinbase, Paul Grewal, argues that the proposal named “Safeguarding Advisory Client Assets, Proposed Rule 223-1” is misguided. In a recent letter to the securities regulator, Grewal emphasized the need to make various revisions. He stated that some of the assumptions made on the proposal are unnecessary and inappropriate, and they could prove “detrimental” to consumer protection for multiple asset classes, including crypto, regardless of whether they are securities or not.
The letter recommended that the SEC should continue to define state trust companies and other state-regulated financial institutions as “qualified custodians.” Grewal also suggested that non-qualified custodians should have limited involvement, and the ban on RIA client trades on crypto exchanges, which are not qualified custodians, should be withdrawn.
Furthermore, the executive pointed out that “the SEC’s rule should tailor standards of care by asset class and client type” while also allowing sophisticated clients to negotiate their contracts.
“We appreciate the chance to weigh in and we look forward to engaging with the SEC to get this right – public rulemaking is a critical step in bringing further clarity to the market.”
Coinbase vs SEC: Regulatory Issues
Lately, Coinbase has been under significant regulatory scrutiny in the country. The SEC served the crypto exchange with a Wells Notice in an enforcement action against the entity. Although CEO Brian Armstrong confirmed that there are no plans to relocate overseas, he emphasized that Europe has been “incredibly welcoming” on the regulatory front. Therefore, since the US has failed to provide regulatory clarity, Coinbase has boosted its international expansion. It recently launched Coinbase International Exchange, a Bermuda-based crypto derivatives platform for non-US institutional clients.
