Paul Grewal, Coinbase’s Chief Legal Officer, spoke out against the U.S. Securities and Exchange Commission’s proposed revisions to federal custody requirements that would require registered investment advisers (RIAs) to hold client assets with qualified custodians.
The exchange officially added its comments on the proposed rule on May 8, the filing deadline.
Grewal’s tweets come after Marisa Tashman Coppel, policy advisor to the Blockchain Association, warned on May 8 that the SEC’s rule change could “drastically curtail” crypto investment.
Grewal said in a Twitter thread that the exchange corresponds to the ‘spirit of the proposal’.
He added:
“We are confident that Coinbase Custody Trust Company will continue to be a QC even if the proposal is passed as is.”
Comments on the SEC proposal
In its comments, among other things, Coinbase disagreed with the SEC’s proposal to shift the types of banks allowed to serve as qualified custodians to only those “subject to federal regulation and oversight” and believes that state trust companies and other state-regulated financial institutions must remain qualified custodians.
“The proposal does not contain any policy statement or economic analysis that would support changing the scope of banks eligible to serve as qualified custodians,” Coinbase noted in its comments, adding that such a rule requires more reasoning, assessment of alternatives and cost-benefit analysis than foreseen in the proposal.
Coinbase also believes that the SEC’s proposed requirement for RIAs to maintain possession or control of client assets at all times is “to justify banning RIA client transactions on crypto exchanges that do not have qualified are custodians and require pre-funding to execute transactions.”
The firm believes the proposal should allow clients’ assets to temporarily leave the qualified custodian to allow advisors to execute and settle trades within one day of the transaction. It claims that this restriction on crypto asset trading does not consider the reasoning for crypto exchanges pre-funding trades or the real-time settlement advantage it provides.
Grewal said in his Twitter thread that:
“[T]his proposal unnecessarily differentiates crypto and makes inappropriate assumptions about custody practices based on securities markets.
According to Coinbase, the SEC should implement a “uniform standard of ownership or control” that will allow consumers to hold crypto assets with a wider range of qualified custodians. The company noted that the proposal in its current form would disadvantage broker-dealers, as they would be held to a higher crypto-asset custody standard than banks and foreign financial institutions, and believes that broker-dealers could use crypto-assets must be held under the same requirements as other asset classes.
Coinbase also proposed other changes to the proposal, such as aligning indemnification and insurance requirements by asset class and allowing sophisticated investors to negotiate custodial arrangements.
Grewal ended the thread by saying:
“We appreciate the opportunity to weigh in and we look forward to working with the SEC to get this right – public regulation is a critical step in bringing greater clarity to the marketplace.”
Coinbase vs SEC
Coinbase has been embroiled in a legal battle with the SEC since it received a Wells Notice in March. Since then, the exchange has repeatedly spoken out against the SEC’s regulations.
The exchange recently obtained a court order forcing the SEC to respond to the exchange’s mandamus petition asking the SEC to use its regulatory process to develop guidelines for companies in the crypto industry.