Coinbase's legal chief has asked the US Securities and Exchange Commission (SEC) to make several amendments to its proposed regulations governing the responsibilities of registered investment advisors (RIAs) to store client assets with qualified custodians.
While the SEC recognized Coinbase Custody Trust Company as a “qualified custodian,” Coinbase argued that the updated RIA custody rules unfairly target cryptocurrencies and make improper assumptions about securities-based custody practices. The proposed SEC rules king fails to protect other asset classes, such as cryptocurrencies, according to a May 8 letter from Coinbase Chief Legal Officer Paul Grewal.
Coinbase Custody Trust Company is recognized as a qualified custodian for RIA clients. This custodian is responsible for protecting client assets from potential threats such as bankruptcy and cyber-attacks. The letter argues for expanding the fiduciary duty proposal to ensure it still accommodates future investments and protects them appropriately.
An RIA is a firm that advises clients on securities investments and can handle their investment portfolios. These firms are registered with the SEC or state securities regulators, depending on the value of assets under management. In the letter to the SEC, Grewal criticized the proposed rulemaking, titled "Protecting Advisory Client Assets, Proposed Rule 223-1," as misguided. Grewal called for revisions to the proposal and staff guidance, emphasizing the need to protect all asset classes, including crypto assets that until now have not been en classified as securities.
Grewal proposed several amendments to the rule to protect investors, including defining National Trust Corporations and other state-regulated financial institutions as qualified custodians, a longstanding policy of Congress and the SEC. He also suggested allowing limited exposure ure to unqualified custodians and lifting the ban on RIA clients trading on cryptocurrency exchanges with unqualified custodians. The SEC is expected to comply with the court order and respond to Coinbase's write of enforcement this week. Coinbase filed the lawsuit in April 2022, asking the court to compel the SEC to publicly disclose its position on a petition filed months earlier. In the petition, the exchange raises 50 specific questions about its regulatory treatment of certain digital assets.
