Nine U.S. lawmakers asked the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) to clarify how crypto firms can become registered broker-dealers and provide custody services for crypto assets.
In a joint letter sent to SEC Chairman Jay Clayton Wednesday, the bipartisan group of representatives wrote they want the SEC to build out the requirements that would enable crypto firms to custody digital securities, and in turn allow FINRA to approve broker-dealer applications for the space.
The letter pointed to recent guidance by the Office of the Comptroller of the Currency (OCC), which published an interpretative letter in July declaring that federally regulated banks may provide custody services for cryptocurrencies.
The lawmakers specifically ask the SEC to take three actions:
- Confirm that banks can provide custody services for digital securities
- Create requirements for crypto custody services that FINRA can use to assess broker-dealer applications
- Tell FINRA to approve broker-dealer applications from the crypto industry
The issue has been outstanding for years. CoinDesk reported in June 2019 FINRA had been sitting on a number of broker-dealer applications from firms that touch crypto, some for over a year. FINRA had taken no actions to approve or disapprove these applications, letting them sit in a sort of limbo.
In a joint statement referenced by Wednesday’s letter, the SEC and FINRA said various concerns needed to be addressed, such as whether the custody provider could prove that no other party had control of its private keys and how they could prevent unauthorized or accidental transfers.
Broker-dealers in the crypto space may also lose Securities Investor Protection Act protections if the crypto assets are deemed to not be securities, the agencies said.
Reps. Tom Emmer (R-Minn.), Warren Davidson (R-Ohio), Bill Foster (D-Ill.), David Schweikert (R-Ariz.), Darren Soto (D-Fla.), Ted Budd (R-N.C.), Dan Crenshaw (R-Texas), Ralph Norman (R-S.C.) and Ro Khanna (D-Calif.) co-signed the letter, which was also sent to the other four SEC Commissioners and FINRA CEO Robert Cook.
Clayton, who has served as SEC Chair since 2017, announced last month he intends to step down from his position at the end of this year.
To date, only a few companies in the crypto space have become registered broker-dealers, including Watchdog Capital, Harbor (which was acquired by BitGo) and Prometheum.