The U.S. Securities and Exchange Commission (SEC) is set to propose rule changes that would make it harder for crypto firms to be designated as “qualified custodians,” Bloomberg reported.

The new rules would allow crypto firms to hold client assets for money managers.

While the proposed changes have not yet been released, they could make it more difficult for institutional funds that have invested in cryptocurrency to comply with regulatory requirements for holding client assets.

These funds may need to move their clients’ holdings elsewhere, which could have a significant impact on the cryptocurrency market.

The SEC has been increasingly active in recent months in an effort to mitigate the risks that cryptocurrencies pose to the broader financial system.

The failures of digital asset exchanges FTX and crypto broker Voyager Digital have been cited as examples of the need for increased regulatory oversight.

While the proposed rule changes are aimed at improving the safety and soundness of the financial system, they have already had an impact on the cryptocurrency market.

In recent weeks, concerns about a potential regulatory crackdown have contributed to a decline in the value of Bitcoin, which has fallen for two consecutive weeks.

The issue at hand is whether or not crypto firms can be designated as “qualified custodians” and hold client assets for money managers.

Hedge funds, private equity firms, and pension funds are required to use qualified custodians to hold their clients’ assets, and the proposed rule change could mean that institutional funds that have invested in cryptocurrency may need to find alternative custodians.

They may also face surprise audits related to their custodial relationships or other potential ramifications.

The SEC has been grappling with the question of who can be qualified custodians of crypto assets since 2020 and has requested feedback from the public.

The proposal would need to be approved by a majority of the five-member SEC before being put out for public comment.

The SEC would then need to vote again to finalize the rule after taking into account feedback for it to take effect.

The SEC is set to release the details of the proposed rule changes in the coming days, and the cryptocurrency market will be watching closely for further developments.

Read more @Benzinga

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