The chief legal officer of Coinbase has called for changes to be made to the SEC's RIA custody rule to provide protection for all types of assets, including cryptocurrencies. The officer has criticized the rule for singling out cryptocurrencies and treating them unfairly.
Coinbase's legal officer, Paul Grewal, has urged the US Securities and Exchange Commission (SEC) to revise its proposed regulation for registered investment advisers' (RIAs) responsibilities in storing client assets with qualified custodians. While the SEC recognizes Coinbase Custody Trust Company as a qualified custodian, Coinbase argues that the updated RIA custody rule discriminates against cryptocurrencies and wrongly assumes custodial practices based solely on securities. Grewal's May 8th letter states that the proposed SEC rule does not safeguard other asset classes, including cryptocurrencies.
Coinbase Custody Trust Company, responsible for protecting RIA clients' assets from risks such as bankruptcy and cyberattacks, is recognized as a qualified custodian. Grewal's letter advocates for expanding the custody obligations proposal to ensure it remains adaptable to future investments and adequately protects them.
Grewal has criticized the proposed rulemaking titled "Safeguarding Advisory Client Assets, Proposed Rule 223-1" in a letter addressed to the SEC, calling it misguided. In the letter, Grewal has highlighted the need to safeguard all asset classes, including crypto assets that haven't been classified as securities yet. Grewal has suggested several revisions to the rule to protect investors, such as defining state trust companies and other state-regulated financial institutions as qualified custodians, as per the longstanding congressional and SEC policy. Additionally, he has proposed allowing limited exposure to non-qualified custodians and removing the ban on RIA client trades on crypto exchanges, which are not qualified custodians.
Coinbase had filed a lawsuit in April 2022, asking the court to compel the SEC to publicly disclose its stance on a petition that the exchange had submitted several months prior. In the petition, Coinbase had posed 50 specific questions about the regulatory treatment of certain digital assets. The SEC is expected to comply with the court order and respond to Coinbase's writ of mandamus this week.
