US Securities Officials Investigating Crypto Custody Investment Advisers: Here's Why

Investment advisers are legally not allowed to keep the custody of digital assets, securities, and funds of their clients.

The commission has prioritised crypto when it comes to law enforcement under the Democratic leadership. It expanded the crypto team last year to keep track of the industry practices. ( Image Source :Getty )

The US Securities and Exchange Commission (SEC) has started investigating investment advisers who are registered. The probe is underway to find out if the crypto asset investment advisers follow all the required rules and regulations or not. According to Reuters, the current investigations will focus on the custody of client crypto assets. The SEC has been interrogating the investors about their efforts to obey the mandated rules by the agency for many months in the past on all matters pertaining to the custody of clients' digital assets.

As per the report, the probe is not new and the investigations have only gained momentum after the unprecedented meltdown of FTX crypto exchange last year in November.

People with adequate information on the matter have not come out to the public due to the sensitivity of the issue. Investment advisers use a third-party setup to store the digital assets of their clients.

Officials of the commission are trying to understand from the adviser what the firms did to evaluate platform custody. This also includes the FTX. The current move indicates regulators are increasing their scrutiny and tracking of the crypto industry more than ever. However, the SEC is yet to comment on the matter officially.

The law mandates that investment advisers can not keep the custody of digital assets, securities, and funds of their clients if they do not follow the required rules aimed at protecting those assets. One of the primary requirements is that advisers must store the assets only with a qualified custodian. However, the SEC does not maintain an official list of such custodians.

The regulator is focusing on the long pending matter in which conventional firms have asked for ways to engage in crypto investment. The SEC's accounting guidelines have already restricted advisers who seek custodians, reported Reuters. 

Commenting on the matter, Anthony Tu-Sekine of Sewad and Kissel's Blockchain and Cryptocurrency Group, said, "This is an obvious compliance issue for investment advisers." He also added that clients' assets and securities must be in the custody of qualified custodians. Sekine also stated that it is an easy call for the SEC.

The commission has prioritised crypto when it comes to law enforcement under Democratic leadership. It expanded the crypto team last year to keep track of industry practices.

Despite its increased efforts to scrutinise the crypto industry, the regulator has been under immense pressure to ensure smooth operation in the entire industry after the FTX collapse. The agency has been investigating the FTX equity investors for some time now. Former FTX CEO, Sam Bankman-Fried, has pleaded not guilty to the charges levelled against him.

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