SEC Is Investigating Financial Advisors Over Cryptocurrency Custody

According to a report published by Reuters on January 26 that cites three unnamed sources, the United States Securities and Exchange Commission (SEC) is reportedly conducting an investigation into registered investment advisers to determine whether or not they are following rules regarding the custody of client cryptocurrency assets.

According to the sources, the SEC’s investigations have been kept secret up to this point because the agency does not make its probes public. As stated in the report, the majority of the work that the SEC is putting into this investigation is focused on determining whether or not registered investment advisors have complied with the laws and regulations regarding the custody of client cryptocurrency holdings.

The Investment Advisers Act of 1940 stipulates that in order for investment advice businesses to be eligible to provide custody services to customers, the firms must also comply with the custodial precautions that are outlined in that act, believes SEC.

Public firms that have an interest in the recent crypto epidemic in their sector are being cautioned by the Securities and Exchange Commission (SEC) to disclose that position to their investors. The SEC inquired as to whether or not companies run the danger of experiencing adverse effects on their operations as a consequence of excessive redemptions, withdrawals, or the suspension of redemptions or withdrawals of crypto assets.

The regulatory body said:

“Recent bankruptcies and financial distress among crypto asset market participants have caused widespread disruption in those markets. Companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that these events and collateral events have had or may have on their business.”

In the last few months, the cryptocurrency sector has been rocked by a number of prominent failures and bankruptcies, including that of crypto exchange FTX and other lenders who disclosed that they owed hundreds of customers millions of dollars’ worth of cryptocurrency. The SEC chairman, Gary Gensler, has taken an even more negative position against cryptocurrencies as a result of this.