Altcoin News: SEC and FINRA Commented on the Delay in Issuing Brokerage Licenses to Crypto Companies
The US Securities and Exchange Commission (SEC) and the Financial Services Industry Regulatory Service (FINRA) published a joint statement on Monday highlighting a number of factors that need to be taken into account when considering requests for broker-dealer licenses for companies related to digital assets.
“The purpose of the Customer Protection Rule is to safeguard customer securities and funds held by a broker-dealer, to prevent investor loss or harm in the event of a broker-dealer’s failure, and to enhance the Commission’s ability to monitor and prevent unsound business practices,” the publication says.
As the regulators explain, the broker can confirm possession of the private key of the cryptocurrency wallet, however, he is unlikely to succeed in proving that he does not have anyone else.
“If, for example, the broker-dealer holds a private key, it may be able to transfer such securities reflected on the blockchain or distributed ledger. However, the fact that a broker-dealer (or its third party custodian) maintains the private key may not be sufficient evidence by itself that the broker-dealer has exclusive control of the digital asset security (e.g., it may not be able to demonstrate that no other party has a copy of the private key and could transfer the digital asset security without the broker-dealer’s consent),” they write.
Previously, some companies in the field of cryptocurrency reported that for more than a year they have to wait for the decision of regulators. Some have suggested that the SEC has imposed a moratorium on the approval of such applications, others that digital assets carry with them new challenges that need to be resolved at the legal level.
In addition, the SEC and FINRA point out that such a common practice as transferring securities to third-party custodial services when working with digital assets entails additional risks of their loss or theft. The broker will not be able to cancel the transaction in the blockchain if it is transferred to an unauthorized address.
Regulators also have certain reporting questions, as “The nature of distributed ledger technology, as well as the characteristics associated with digital asset securities, may make it difficult for a broker-dealer to evidence the existence of digital asset securities for the purposes of the broker-dealer’s regulatory books, records, and financial statements, including supporting schedules”.
Author: Marko Vidrih