SEC Extends Olive Branch to Broker-Dealers Handling Digital Assets

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In Brief
  • The SEC announced Wednesday that it would grant a five-year grace period for special purpose broker-dealers handling digital asset securities.

  • The move was generally welcomed by industry insiders.

  • Like other digital asset security regulations, custody remains an uncertain area.

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The U.S. Securities and Exchange Commission (SEC) released a statement on Wednesday requesting comment on the custody of digital assets by special purpose broker-dealers.

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The move follows official charges recently brought on Ripple executives. The SEC, according to the statement, seeks to “encourage innovation” regarding digital asset securities.

The Commission will reportedly grant a grace period of five years to broker-dealers who have handled digital asset securities:

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“…a broker-dealer operating under the circumstances set forth in the statement will not be subject to a Commission enforcement action…”

Several crypto exchanges have rushed to delist XRP in the US. And notable hedge fund, Bitwise, has already liquidated all of its XRP (3% of the fund) and moved into other crypto assets.

SEC Commissioner Hester Peirce said the announcement was a baby step, but others called the move “1 step forward, 12 steps back.”

SEC Requests Comment

Ripple CEO Brad Garlinghouse staunchly criticized the uncertain regulatory landscape back in October. Garlinghouse even hinted that Ripple could relocate to a more favorable jurisdiction outside of the US.

While the SEC did not specifically name any companies in the release, some onlookers speculate that the timing is not coincidental. An additional quote from an official supplementary document reads:

“The Commission envisions broker-dealers performing the full set of broker-dealer functions with respect to digital asset securities – including maintaining custody of these assets – in a manner that addresses the unique attributes of digital asset securities and minimizes risk to investors and other market participants.”

Regulatory Uncertainty Remains

The wordy release continues to raise questions regarding the lack of regulatory clarity surrounding digital securities and custody in the country. The Commission appears stuck between an innovation rock and a protective hard place:

“…the Commission is requesting comment to provide the Commission and its staff with an opportunity to gain additional insight into the evolving standards and best practices with respect to custody of digital asset securities.”

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Ryan was BiC's U.S. Time Zone Editor until the end of Feb 2021. He is fascinated with the history and evolution of money and the role that crypto plays in fixing a broken financial system. When not meticulously looking over the charts, he can be found jamming some board games or running the trails in his local nature reserve.

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