Regulatory pressure on the industry is still growing. Securities and Exchange Commission (SEC) Chairman Gary Gensler has stated that cryptocurrency exchanges cannot be considered qualified custodians.

A custodian is an entity that holds securities or other financial assets, including cryptocurrencies. This is an official activity that is legally regulated. In the United States, custodians are overseen by the SEC.

The head of the SEC accused cryptocurrency exchanges of being unreliable.

Gensler addressed the Investor Advisory Committee meeting on March 2. The SEC chief said that a recently proposed rule requiring investment advisers to go to qualified custodians to hold assets, including cryptocurrencies, brings important improvements to existing protections for market participants. He also noted that cryptocurrency exchanges cannot be considered safe under this rule.

“Based on how cryptocurrency trading and lending platforms typically operate, investment advisers cannot rely on them as qualified custodians. Let me repeat that for emphasis. Even if a cryptocurrency trading platform represents that it is a qualified custodian, it may not be in reality.”

The SEC chairman reminded those present of the recent high-profile bankruptcies of cryptocurrency companies such as Voyager, Celsius, and FTX. He particularly focused on the fact that the funds of customers of the failed platforms have now become part of the bankruptcies’ assets and will not be returned to their owners.

“Congress gave us new authorities to expand the trustee principle in response to the financial crisis and Bernie Madoff’s fraud. We will now be able to ensure that advisers do not abuse and lose investors’ assets.”

The US regulator continues to take action

The SEC proposal follows a series of other actions by the US regulator related to cryptocurrency companies. One of the first victims of the SEC was the Kraken exchange. It had to pay a $30 million fine and shut down its staking program in the US. The next target of the SEC was stablecoin issuer Paxos. After the SEC deemed the third-largest stablecoin BUSD a security, the company stopped issuing new coins. And just a few days ago, Gensler suggested that Ethereum also falls under this definition.

Earlier, the US Securities and Exchange Commission identified the cryptocurrency industry as a regulatory priority. It also promised to focus on digital technologies and blockchain. The SEC said in a statement that the rapidly developing industry poses potential risks to investors and the integrity of US capital markets. It can be absolutely said that the pursuit of the US regulator for crypto companies will gain momentum throughout 2023.