The SEC May Make Hedge Funds Tougher To Access Crypto Firms With New Proposal

Key Points:

• To qualify as “qualified custodians,” or businesses that keep client funds for money managers, the SEC would make it more difficult for cryptocurrency companies.
• Private equity companies and pension funds may find it more difficult to deal with several crypto startups as a result of the SEC plan.
• Hedge funds, as well as some venture capital and pension funds, are required to keep the assets of their customers with certified custodians.

According to Bloomberg on Tuesday, the U.S. Securities and Exchange Commission (SEC) intends to propose regulatory changes that will make it more difficult for hedge funds, private equity firms, and pension funds to partner with cryptocurrency companies.

According to the people who asked to remain anonymous because the specifics haven’t been made public, rule changes that the US Securities and Exchange Commission plans to propose Wednesday would, in effect, make it harder for crypto firms to be “qualified custodians,” a designation that allows companies to hold client assets for money managers. It’s unclear what exact modification the agency could want to make to those rules.

Hedge funds, some venture capital firms, and pension funds are required to keep the assets of their customers with certified custodians. If adopted, the regulation may force institutional institutions that have invested in cryptocurrencies to relocate the assets of their clients. Additionally, they can experience unexpected audits connected to their custody arrangements or other repercussions.

The SEC’s proposals would be the most recent action taken by Washington to reduce the dangers that cryptocurrency may provide to the larger financial system. Following a string of spectacular failures in 2022, including those of the cryptocurrency broker Voyager Digital and the digital-asset exchange FTX, regulators have adopted a more assertive approach.

The US regulatory body has been scrutinizing cryptocurrencies more closely, and it recently sued stablecoin producer Paxos and its BUSD stablecoin. The collapse of the crypto market recently, which infuriated international authorities, has left the sector in a state of shock.

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Harold

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