Coinbase, a leading cryptocurrency exchange, has submitted a formal response to the U.S. Securities and Exchange Commission’s (SEC) proposed rule changes for investment advisers, expressing concerns and suggesting amendments to ensure a fair regulatory environment for the cryptocurrency industry.
In a detailed letter, Coinbase outlines several key issues that it believes need to be addressed in the proposed rule.
Addressing assumptions about custodial practices
One of the primary concerns raised by Coinbase is the SEC’s proposed expansion of Registered Investment Adviser (RIA) custody obligations to include all client assets, not just funds and securities.
The company argues that the proposal relies on assumptions based on the SEC’s experience with securities, which may not be appropriate for other asset classes, including cryptocurrencies.
Coinbase believes that the proposal, in its current form, could have detrimental effects on consumer protection and the development of the cryptocurrency industry.
To mitigate these risks, the exchange suggests that the SEC revise its approach to custodial practices and adapt the requirements to accommodate the unique characteristics of crypto assets.
Coinbase also addresses the SEC’s request for comment on whether to limit the types of banks that can serve as qualified custodians to those subject to federal regulation and supervision.
The company strongly disagrees with this suggestion and advocates for the continued recognition of state trust companies and other state-regulated financial institutions as qualified custodians.
Coinbase argues that state financial regulators are often more agile in responding to technological and economic changes, and excluding state-regulated banks from the definition of qualified custodians would go against long-standing Congressional and Commission policies that promote a dual-regulatory system for banks.
Another key issue raised by Coinbase is the SEC’s proposal to narrow the exceptions allowing RIAs to custody physical assets and certain private securities.
The company contends that this limitation could effectively ban RIA clients from investing in asset classes, such as early-stage crypto tokens, that cannot be held by a qualified custodian.
To resolve this concern, Coinbase proposes that the SEC expand the qualified custodian exception to include any asset that cannot be maintained at a qualified custodian.
This would allow RIAs to invest in a wider range of asset classes, including those that leverage blockchain technology and crypto asset market practices.
Coinbase seeks clarification for broker-dealers and possession or control
Lastly, Coinbase calls on the SEC to clarify the interpretation of “possession or control” for broker-dealers and rescind staff guidance that imposes a higher custodial standard for crypto assets.
The company asserts that broker-dealers should be subject to the same requirements for crypto assets as they are for other asset classes, and that the SEC should adopt a technology and entity-neutral stance towards crypto assets.
By addressing these concerns and implementing the necessary revisions to the proposal, Coinbase believes that the SEC can create a more equitable regulatory environment that fosters innovation and growth in the cryptocurrency industry while ensuring the protection of investors and the efficiency of markets.
Coinbase’s detailed response demonstrates the company’s commitment to working with regulators to shape the future of the industry and highlights the importance of collaboration between the private sector and regulatory bodies in developing effective and fair rules that benefit all stakeholders.
