SEC Investigates Investment Advisors for Crypto Asset Custody Practices

• The United States Securities and Exchange Commission (SEC) is reportedly inquiring investment advisors on their practices of providing crypto asset custody to clients.
• The investigation is thought to have been triggered by the collapse of FTX and aims to ensure that investment advisors are following the rules around custody of clients’ digital assets.
• Three sources have confirmed to Reuters that the SEC enforcement staff has asked investment advisors for details on their procedures for assessing custody for crypto platforms.

The United States Securities and Exchange Commission (SEC) is reportedly probing investment advisors for potentially offering digital asset custody services to their clients without meeting the necessary criteria. According to three unnamed sources who spoke to Reuters, the SEC’s enforcement staff has requested details from investment advisors on their practices related to the custody of digital assets.

The investigation is thought to have been triggered by the collapse of FTX, a prominent crypto derivatives trader, and is aimed at ensuring that investment advisors are following the rules around the custody of clients’ digital assets. The SEC is reportedly looking into whether investment advisors have conducted the necessary due diligence on crypto platforms and taken the appropriate steps to ensure that their clients’ assets are safe.

The SEC’s inquiry into investment advisors is part of its broader effort to regulate the burgeoning crypto industry. Last year, the Commission released an updated set of guidelines for digital asset custodians that outlined the expectations for those providing crypto custody services. The guidelines require digital asset custodians to implement robust controls and procedures to protect customer assets from theft, fraud, and other risks.

The Commission is also reportedly looking into the practices of crypto firms that offer services to their clients without registering with the SEC. The agency is said to be scrutinizing whether these firms are violating securities laws by offering digital asset services without following the proper registration process.

The SEC’s crackdown on the crypto industry comes as the sector has grown rapidly in recent years. Despite the SEC’s increased scrutiny, however, the industry’s growth has continued unabated. With the Commission’s inquiry into investment advisors, it is clear that the regulator is taking its role of protecting investors seriously and is looking to ensure that proper rules are followed.

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