SEC Requires Crypto Exchanges To Expose Their Clients’ Assets

This year, the crackdown on digital assets has been at the top of the U.S. Securities and Exchange Commission’s (SEC) plan. This was made clear by SEC Chairman Gery Gensler in January when he noted:

“If trading platforms don’t enter the regulated space, it would be another year of public vulnerability.”

Since then, the SEC has used its agencies exclusively to get information and run surveys on crypto exchanges.

Yesterday, he took a step closer to his goal. It required crypto-trading firms to consider all assets they held for their clients as their own capital, including them on their balance sheets. In addition to fiat currencies, the nature and amount of crypto assets held for clients will also be disclosed in detail.

The new rule will come into effect from June and will apply to all publicly traded crypto trading companies. Currently, crypto trading companies separately register and disclose the digital assets they hold on behalf of their clients. This system is also used by brokerage houses.

The new requirement will separate crypto exchanges from brokers and significantly expand exchange balance sheets starting in June. For example, while Coinbase listing $21.3 billion in assets and liabilities on the balance sheet last year, it also said it had $278 billion in cryptocurrency and currencies in client custody.

Why does the SEC want to know?

According to the announcement, the SEC is concerned about the negative impact of technological, legal and regulatory risks of cryptocurrencies on their operations. The announcement states:

“The obligations associated with these agreements involve unique risks and uncertainties not present in non-cryptoasset asset protection agreements, including technological, legal and regulatory risks and uncertainties.”

Technological risks include safeguarding assets and third parties who may be affected by the high volatility of crypto assets. Legal risks refer to the lack of precedent for how custody of cryptos would be treated in court.

On the other hand, regulatory risks are having few regulatory requirements for holding crypto. At the same time, stock exchange firms may not comply with existing new regulations, which increases risks for investors.

With the new rule, the SEC hopes to expose more data on crypto exchanges to help investors with their allocation decisions. The judgment says:

“Staff believe that the recognition, measurement and disclosure guidance contained in this statement will improve the information received by investors and other users of financial statements about these risks, thereby assisting them in making investment and management decisions. capital allocation.”

Posted in: United States, Regulation

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SEC Requires Crypto Exchanges To Expose Their Clients’ Assets


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