The SEC Commissioner and head of the crypto task force, Hester Peirce, compares how U.S. financial firms are handling crypto to playing the children’s game “the floor is lava”. but in the dark. Peirce emphasized that it was time to find a solution to end this game. He suggested switching on the lights and adding walkways over the lava pit during the SEC’s “Know Your Custodian” roundtable on Apr. 25.
Peirce compared the situation faced by SEC registrants to playing a game of “the floor is lava.” In this game, the aim is to jump from one piece of furniture to the next without touching the ground. However, the “lava” is directly touching crypto.
SEC calls for clearer crypto custody rules
Peirce explained that similar to a game, companies wanting to get involved with crypto must be careful not to directly hold it due to the unclear regulatory environment. He said:
To engage in crypto-related activities, SEC-registrants have had to hop from one poorly illuminated regulatory space to the next, all while ensuring that they never touch any crypto asset.
Peirce mentioned that investment advisers often struggle to determine which crypto assets the SEC considers securities, which entities qualify as custodians, and whether exercising staking or voting rights might lead to custody violations. He also said that brokers or alternative trading systems (ATS) that can’t hold or manage crypto assets will face difficulties in trading. This, in turn, makes it unlikely for a robust market to grow.
SEC Commissioner Mark Uyeda shared a similar viewpoint at the event, emphasizing that as more SEC-registered firms start working with crypto assets, it’s essential they have access to custodial options that comply with legal and regulatory standards.
She recommended that the agency consider allowing advisers to use “state-chartered limited-purpose trust companies” with the necessary authority to hold crypto assets as qualified custodians.
Meanwhile, newly appointed SEC chair Paul Atkins mentioned that he anticipates “huge benefits” from blockchain technology, such as improving efficiency, reducing risks, enhancing transparency, and cutting costs.
