SEC Says Crypto Exchanges Must Treat User Funds As Their Own Responsibilities

The United States Securities and Exchange Commission (SEC) says that going forward, crypto exchanges must treat their users’ digital assets as their own liabilities.

In a new bulletin, the SEC says crypto-trading platforms that protect digital assets face unique risks not seen in traditional financial services.

“As part of these services, these entities and/or their agents may protect the Platform User’s cryptographic asset(s) and also retain the cryptographic key information necessary to access the cryptographic asset.

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.

The agency says that given the unique uncertainties inherent in providing crypto services, companies should present liabilities on their balance sheets to reflect their users’ digital assets in their custody.

In its bulletin, the SEC refers to crypto platforms as “Entity A”.

“The ability of users of Entity A’s platform to obtain future benefits from crypto-assets in digital wallets where Entity A holds the cryptographic key information depends on Entity A’s actions to protect the assets. These actions include securing crypto-assets and associated cryptographic key information and protecting them against loss, theft or other misuse.

The technological mechanisms supporting how crypto-assets are issued, held or transferred, as well as legal uncertainties regarding the holding of crypto-assets for third parties, create material increased risks for Entity A, including increased risk of financial loss.

Therefore, as long as Entity A is responsible for protecting the crypto assets held for users of its platform, including maintaining the cryptographic key information necessary to access the crypto assets, staff believes that Entity A should present a liability on its balance sheet to reflect its obligation to protect the crypto assets held for users of its platform.

The SEC says it expects crypto platforms to start disclosing the nature and amount of crypto assets held by their users in company accounts by June 15.

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SEC Says Crypto Exchanges Must Treat User Funds As Their Own Responsibilities

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