SEC to Make it Harder to Work with VC, Private Equity Firms

Institutional investors, hedge funds and other private equity firms face significant roadblocks working in the crypto space if a new proposal from the US Securities and Exchange Commission go into effect. Under the proposal, crypto firms would have a tougher time being “qualified custodians,” a status which allows private companies to hold client assets for money managers. Details on the US Securities and Exchange Commission’s plans aren’t available yet but here’s what Bloomberg reports:

The SEC’s plans would be Washington’s latest move aimed at curtailing risks crypto might pose to the broader financial system. Regulators have taken an increasingly aggressive stance after a series of spectacular failures in 2022 that included digital-asset exchange FTX and crypto broker Voyager Digital.

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Hedge funds and some venture-capital and pension funds are required to use qualified custodians to hold their clients’ assets. If finalized, the rule could mean that institutional funds that have delved into crypto might have to move their customers’ holdings elsewhere. They may also face surprise audits related to their custodial relationships or other ramifications. 

SEC staff said in 2020 that the agency was grappling with the question of who can be qualified custodians of cryptoassets and requested feedback from the public.