Congressmen Michael Flood and Ritchie Torres wrote to SEC Chairman Gary Gensler urging him to leave the custody rules unchanged.
In February, the US Securities and Exchange Commission (SEC) proposed specific amendments to the Investment Advisors Act 1940. Currently, the definition of “qualified custodians” includes state-chartered banks, state-regulated trust companies, and federally regulated banks and savings associations. .
Under the proposed changes, the SEC wants to limit the definition to only banks and savings associations under federal regulation.
Congressmen Flood and Torres wrote to Chairman Gensler on May 18, urging him to leave the current definition unchanged.
They argued that the custody of assets for a registered investment adviser (RIA) is a “core business of banking”. Such activities should therefore be subject to the banking rules and regulations of the existing dual banking system in the US, where state and national banks operate on an equal footing.
The congressmen also pointed out that state regulators already have rules to protect consumers. Uninsured state trust companies continue to be subject to extensive client protection rules, such as capital and liquidity standards, and have “proven prudent custody services for centuries.”
Therefore, narrowing the definition of qualified depositaries will “do the opposite” of providing more security to investors, the congressmen wrote. They added that given the small number of digital asset custodians, restricting the definition is likely to lead to market concentration and negatively impact competition.
Finally, it was pointed out that the SEC’s own draft noted that a narrowing of the definition could lead investors to remove assets from an innovative and safe custodian – possibly resulting in assets being held at “greater risk of loss”. placed.
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