Good news for Crypto Decentralized exchanges: Regulators approve trade without custody of funds
The SEC and FINRA in the US UU published a joint statement that clarifies some rules that apply to exchanges. Regulators seem less strict with non-custodial markets.
Two of the main US regulators The US is giving new regulatory guidelines that could allow exchanges to finally be established within the country. The SEC and the Financial Industry Regulatory Authority (FINRA) published a joint statement on the obligations of exchange agents for cryptocurrencies. In the document, they clarified some of the rules that apply to digital asset exchange operations.
The joint letter explores the digital implications of the Client Protection Rules. This standard requires that exchanges “safeguard clients’ assets and keep them separate from the assets of the company”. In case the business goes bankrupt, this allows clients to recover their invested funds.
The document highlights a key rule proposed in the declaration, which is mandatory for any broker-agent of custody: “Physically keep the values of customers fully paid … or keep them free from seizure in a good place of control”.
Good news for the DEX
The letter should bring more peace of mind for non-custodial exchanges such as ShapeShift, VertBase and other decentralized platforms, as the agencies are focusing their attention on centralized businesses. The objective is to protect customers from losses in case of commercial failure, theft or errors, so that regulators establish a series of protection custody requirements for exchanges that maintain customers’ digital assets.
But according to the letter, non-custodial exchange solutions do not present these same risks. In this regard, the regulators commented:
«In general terms, the non-custodial activities related to the values of digital assets do not raise the same level of concern […] as long as the relevant securities laws, the rules of the Self-Regulation Organizations (SRO), are complied with, as well as other legal and regulatory requirements “.
Centralized exchanges, on the other hand, may have more difficulty demonstrating that they have real control over assets. As regulators point out, it is more difficult to guarantee full custody of digital assets than for physical assets or securities. According to the letter:
“The fact that a broker-agent (or his third custodian) holds the private key may not be sufficient evidence in itself that the broker-agent has sole control over the security of the digital assets. (For example, you may not be able to prove that no other party has a copy of the private key and could transfer the security of digital assets without the broker-agent’s consent).
“In addition, the fact that the broker-agent (or custodian) has the private key may not be sufficient to allow you to reverse or cancel erroneous or unauthorized transactions. These risks could cause the securities clients to suffer losses, with the corresponding responsibilities of the broker-agent, endangering the company, its clients and other creditors “.
«One step in the right direction»
The legal observers of the cryptocurrency space welcomed the joint letter as a small step towards greater normative clarity. Jasmine Shergill, director of Regulatory Affairs for eToro in the US UU and a former FINRA lawyer, commented on this:
“I am not sure that the joint letter of the SEC and FINRA changes the course of the cryptographic custodians”. [But] it provides some comfort to unguarded digital asset companies. “
The letter may also indicate that regulators are more willing to work with the digital asset industry while adhering to the spirit of existing securities laws. “Similar to the SEC’s no action letter, it shows that a regulator is willing to define at least some assets or activities,” Shergill said, adding:
“It’s a step in the right direction for digital asset companies and regulators to be willing to work together to find solutions that protect customers. But that they are also up to date with the evolution and the demands of the market ».
For exchanges that do not comply with these custody laws, the consequences can be quite serious, as reiterated in the statement. A broker-agent who does not return the property of the client in his possession “will be liquidated in accordance with SIPA, since the securities clients have priority over the cash and securities held by the firm”.
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.