Cryptocurrency Startups Get Partial Green Light From Washington
Securities and Exchange Commission says some crypto firms could be cleared for limited brokerage services. Cryptocurrency Startups Get Partial Green Light From Washington (#GotBitcoin?)
Washington is opening the door a crack for cryptocurrency startups that want to disrupt some of Wall Street’s traditional businesses.
The Securities and Exchange Commission said Monday that firms hoping to adapt bitcoin’s technology to uses such as raising capital for private companies could satisfy regulators’ concerns. That means a limited number of crypto firms could be approved as digital-asset brokers in the near future.
But firms hoping to provide a fuller suite of brokerage services, such as facilitating trades and holding securities for customers, aren’t there yet. The government thinks the crypto industry still hasn’t proved its ability to safeguard investors’ assets, given the hacking threat that pervades the business and the ease of losing passwords, known as private keys, which represent ownership.
About two dozen firms are seeking approval as licensed brokerages, with some applications pending for months beyond the standard six-month period for regulators to make a decision, according to lawyers involved in the process. For many of the companies, the challenge has been convincing regulators they understand the rules that apply to brokers, which have an overarching obligation to safeguard the assets of customers and protect them in case the broker goes out of business.
Supporters of the crypto industry have accused the SEC of taking too long to say how the startups can mold their unique business to the securities industry’s decades-old rules. SEC rules mandate the use of regulated, third-party repositories to safeguard client assets; these intermediaries don’t exist in the world of cryptocurrencies.
“If figuring out how to deal with the SEC on crypto issues feels like a regulatory version of an escape room, here’s the latest clue,” SEC commissioner Hester Peirce, a Republican, tweeted Monday.
Crypto firms that limit their brokerage applications to services that don’t involve holding client assets could break into the regulated industry soon. These firms would provide limited brokerage services, such as helping private companies raise capital by connecting them with sophisticated investors interested in buying digital assets.
“Noncustodial activities involving digital assets do not raise the same level of concern,” the SEC and the Financial Industry Regulatory Authority said in a statement. Finra is an industry-funded organization that supervises brokerages and enforces some rules on behalf of the SEC.
The price of bitcoin rose about 4% during the several hours after the SEC issued its statement Monday afternoon, according to data from CoinDesk. Cryptocurrency Startups Get Partial, Cryptocurrency Startups Get Partial, Cryptocurrency Startups Get Partial