SEC And FINRA Outline New Regulatory Compliance Issues For Holders

The US SEC and FINRA are in the latest cryptocurrency news for outlining new regulatory compliance issues for custodians that hold cryptocurrency. In a joint announcement on July 8, the United States Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) showed that there are circumstances that are yet to be discovered.

However, both SEC and FINRA agreed that a crypto custodian could comply with the SEC’s Customer Protection Rule which is described as the following:

“Put simply, the Customer Protection Rule requires broker-dealers to safeguard customer assets and to keep customer assets separate from the firm’s assets, thus increasing the likelihood that customers’ securities and cash can be returned to them in the event of the broker-dealer’s failure.”

In the report which went viral in the altcoin news, SEC and FINRA also claim that a crypto custody service may not be able to demonstrate that it actually controls the assets that it purports to hold.

More importantly, both of the organizations were featured on many best cryptocurrency news sites for discussing how simply holding a private key is not sufficient to demonstrate ownership of crypto. As SEC and FINRA noted, another party could have a copy of the private key and therefore perform transactions that the custodian won’t approve.
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If such a transaction was performed, the custodian would not be able to reverse it (at least not in virtue of holding a private key). So, the SEC and FINRA think that this may apply more generally to any transactions that the custodian might desire to cancel as well as reverse.

In addition to this, the coming altcoin news show that SEC and FINRA touched points on issues for registering noncustodial services such as over-the-counter (OTC) platforms and broker-dealer transactions in a more broad and open way. Other areas of compliance that the report addresses include concerns regarding bookkeeping policies and liquidation via the Securities Investor Protection Act.

Previously, the SEC and FINRA scheduled a broker-dealer meeting in Chicago (June 27) to discuss crypto. The meeting was meant to cover “regulatory hot topics” such as cybersecurity and cryptocurrencies.