The chairman of the United States House Financial Services Committee and six subcommittee chairs have sent a letter to the secretary of the United States Securities and Exchange Commission (SEC), Vanessa Countryman, expressing concern about the agency’s proposed advisory client custody rule. They thus join a number of figures in the cryptocurrency sector who have expressed their objections.
President Patrick McHenry and his colleagues wrote that The SEC was exceeding its authority in its proposed rule – known as the Registered Investment Adviser (RIA) rule – which toughens the requirements for qualified custodians of client assets.
#NEW: Chairman @PatrickMcHenrySubcommittee Chairman @RepFrenchHilland all members of the Committee’s Republican leadership team sent a comment letter slamming @SECGov‘s disaster custody proposal and demanding its withdrawal.
Read more https://t.co/l9rMtwfJUy pic.twitter.com/4rzG5etjON
— Financial Services GOP (@FinancialCmte) May 11, 2023
According to your letter, the proposed rule would apply to assets outside the agency’s jurisdiction, such as “art, cash, raw materials and non-traditional assets” and would prevent “the jurisdiction of other regulators by imposing custody rules on entities that already have their custody practices regulated by another regulator.”
The letter claims that the proposal deviates from standard industry practices and would be “incredibly expensive” and “it would undermine the most basic function of banks, the safekeeping of cash.” Participants in the digital asset market would be especially affected:
“The Proposed Rule would have a disproportionate impact on digital asset market participants, as entrepreneurs and ecosystem companies already struggle to find banks willing to hold their assets.”
The digital asset market often turns to banks and state trusts for banking services. Restricting the proposed qualified custodian rule to federally incorporated entities would create complications for them and reduce competition, according to the letter. In addition, the proposed rule would interact with the SEC’s Staff Accounting Bulletin 121, further hurting the banking industry.
The proposed rule has received unfavorable comments from the Blockchain Association and venture capital firm Andreessen Horowitz. Coinbase’s chief legal officer, Paul Grewal, requested changes to the proposal in a letter to the SEC.
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