SEC Chair Gensler believes that crypto exchanges may not classify as “qualified custodians”

“Just because a crypto trading platform promises to be a qualified custodian does not indicate that it is,” the head of the SEC said.

Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), rejected the notion that cryptocurrency exchanges might serve as qualified safe custodians for investment advisors.

Thursday, Gensler said at a meeting of the Investor Advisory Committee that a newly proposed rule ordering investment advisors to use certified custodians for the custody of assets constitutes “significant upgrades” to current protection regulations. Under these criteria, he said, cryptocurrency exchanges should not be considered secure.

“Investment advisors cannot depend on them today as competent custodians because of the way cryptocurrency trading and lending platforms usually function,” according to Gensler. The fact that a cryptocurrency exchange advertises itself as a “certified custodian” does not guarantee that it is.

The SEC chair referenced previous crypto industry bankruptcies, emphasizing that customers’ assets are now part of the bankruptcy estate rather than being returned directly to the consumers.

“The increased custody requirement would assist in preventing advisors from misusing, misappropriating, or losing investors’ funds “Gensler said in his speech.

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