Coinbase chief counsel writes to SEC on regulation

On May.9, Paul Grewal, chief legal officer of Coinbase, wrote to the U.S. Securities and Exchange Commission (SEC) to request revisions to the proposed rule requiring registered investment advisors (RIAs) to store client assets with qualified custodians.

Coinbase is concerned that the updated RIA custody regulation unfairly singles out cryptocurrencies by applying securities-based assumptions to them. The SEC’s proposed regulation does not adequately safeguard crypto assets or any other asset class.

Grewal said that the U.S. SEC’s proposed regulation on the custody rule for investment advisers is “misguided.” Even though the U.S. Securities and Exchange Commission has designated Coinbase Custody as a “qualified custodian,”

Grewal wrote to the SEC to express his firm’s view that the proposed regulation titled “Safeguarding Advisory Client Assets, Proposed Rule 223-1” is inappropriate.

Since cryptocurrencies have not been categorized as securities, Coinbase requests that the proposal and supporting staff recommendations be revised to safeguard all asset classes better.

Paul proposes lifting of RIA client restrictions

Grewal proposes several changes to the regulation intended to protect investors better.

Longstanding congressional and SEC policy on the definition of qualified custodians has been updated to include a continued definition of state trust firms and other state-regulated financial institutions as qualified custodians.

He suggests lifting the restriction on RIA client trading on crypto exchanges that are not qualified custodians, allowing for limited exposure to non-qualified custodians.

The SEC regulation should also enable sophisticated customers to create contracts and modify care standards based on asset class and client type.

This development comes when Coinbase demands that the SEC respond to its petition submitted in 2022. To better understand the SEC’s approach to digital assets and how securities rules are applied to them, the exchange submitted a petition with 50 specific questions.

Bermuda or the United Arab Emirates (UAE) may serve as a central location for Coinbase’s overseas operations in the near future. However, before making any more decisions, the exchange wants to hear from the U.S. SEC about how digital assets are regulated.