The U.S. Securities and Exchange Commission (SEC) has been investigating traditional Wall Street investment advisers who may have provided digital asset custody services to their clients without proper qualifications.
A Reuters report on Jan. 26, citing “three sources with knowledge of the investigation,” said the SEC probe had been underway for months but accelerated following the collapse of cryptocurrency exchange FTX.
The sources said the SEC's investigation was not previously known because the agency's probe was not made public.
According to a Reuters report, much of the SEC's work in this probe will be investigating whether registered investment advisors are complying with rules and regulations regarding the custody of clients' crypto assets.
Investment advisory firms are required by law to be "qualified" to provide custody services to clients and comply with the custody safeguards set out in the Investment Advisers Act of 1940. Anthony Tu-Sekine, head of the blockchain and cryptocurrency group at Seward and Kissel, said recent disclosures show the SEC is not turning a blind eye to traditional investment firms in the digital asset space.
On November 15, 2022, the Wall Street Blockchain Alliance (WSBA) sent a letter to the SEC seeking clarification on which potential amendments, if any, would apply to the “custodial rules” related to digital assets. Meanwhile, securities regulators have continued to ramp up their cryptocurrency enforcement efforts over the past year. In May 2022, it expanded its "Crypto Assets and Networks Division" team by nearly 100%.
It has also been busy with ongoing lawsuits against Ripple Labs, lawsuits related to the collapse of FTX and its founder Sam Bankman-Fried, and more.
