The U.S. Securities and Exchange Commission (SEC) is reportedly increasing its investigation of registered investment advisers.
The SEC aims to determine if the advisers are following regulations related to the safekeeping of clients' crypto assets via the strict probe.
According to anonymous sources with knowledge of the inquiry, the SEC has been questioning advisers' efforts to follow the agency's rules for several months.
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However, the investigation has gathered momentum in the wake of the collapse of crypto exchange FTX, Reuters reported.
The SEC enforcement staff is said to be asking investment advisers for details about what steps they took to assess custody for platforms such as FTX.
Under the law, investment advisers cannot have custody of client funds or securities unless they meet certain requirements to protect the assets.
One of these requirements is that advisers hold such assets with a firm deemed to be a "qualified custodian." However, the SEC does not hold any specific list or offer licenses to firms to become such custodians.
The SEC's investigation signals the regulator is targeting a long-brewing issue for traditional firms that have sought ways to invest in crypto.
Anthony Tu-Sekine, head of Seward and Kissel's Blockchain and Cryptocurrency Group, stated:
This is an obvious compliance issue for investment advisers. If you have custody of client assets that are securities, then you need to custody those with one of these qualified custodians.
The agency's accounting guidance has made it too capital-intensive for many lenders to hold digital assets on behalf of clients, limiting options for advisers seeking custodians.
In other related news, US Senator urged the SEC to double down on its crypto regulation efforts, as the industry is “scared of a strong SEC.”
