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Key industry proponents have shown their opposition to the United States Securities & Exchange Commission’s proposal to strengthen regulations on crypto custody, as revealed in recently submitted letters.
Blockchain Association Challenges SEC’s Proposed Custody Rule Changes
The Blockchain Association, an advocacy group representing the crypto industry, submitted a letter critiquing the proposed changes to the custody rule to the Securities and Exchange Commission (SEC) on the comment deadline.
Likewise, Andreessen Horowitz (a16z), a Web3 venture capital fund, expressed its concerns through a letter sent three days earlier.
Marisa Tashman Coppel, a policy lawyer representing the Blockchain Association, took to Twitter on May 8 to assert that the rule would severely restrict investment in digital assets. She further argued that the current form of the rule is unlawful. In a similar vein, Miles Jennings, the general counsel of a16z, tweeted their letter and boldly labeled the SEC proposal as a misguided attempt to wage “war on crypto”.
The Blockchain Association’s letter presented numerous arguments challenging the SEC’s proposal. It contended that the rule exceeds the SEC’s jurisdiction, hampers advisers from transacting with crypto exchanges, and exposes investors’ assets to higher risks.
A16z echoed similar concerns in its letter, focusing particularly on the impact on registered investment advisers. They argued that the rule would prevent advisers from utilizing crypto and potentially breach the duty of care mandated by the SEC for such firms.
The prohibition on advisors trading crypto on centralized exchanges was deemed illegal, unworkable, and dangerous.
The proposal introduced in February aims to impose stricter rules on investment advisers responsible for custodial assets, including cryptocurrencies. The proposed regulations necessitate the proper segregation of assets, with custodians obligated to undergo annual audits conducted by public accountants, among other transparency measures.
SEC Chairman Gary Gensler has specifically targeted crypto exchanges with this rule, expressing concerns that certain platforms offering custody services may not meet the criteria of being “qualified custodians.”
Notably, the proposal has even encountered resistance from within the SEC itself. Commissioner Hester Pierce has questioned the feasibility and scope of the rule, pointing out its apparent bias towards crypto and crypto-related companies.
As key industry proponents voice their opposition to the United States Securities & Exchange Commission’s proposal for stricter crypto custody regulations, within the SEC itself, Commissioner Hester Pierce questions the feasibility and bias of the proposed rule.
These objections to the SEC’s regulatory proposal provide context to Ripple CEO Brad Garlinghouse’s disclosure at the Dubai Fintech Summit that Ripple has already spent $200 million defending itself against the SEC’s lawsuit.
Ripple’s Costly Defense As CEO Reveals $200 Million Expenditure in SEC Lawsuit
During the Dubai Fintech Summit on May 8, Ripple CEO Brad Garlinghouse shared some eye-opening figures regarding the company’s ongoing legal battle with the United States Securities Exchange Commission (SEC).
According to Garlinghouse, Ripple has already spent a staggering $200 million on defending itself against the SEC’s lawsuit. This significant expenditure highlights the high stakes and complex nature of the case.
Garlinghouse took the opportunity to draw a comparison between the regulatory progress of the United Arab Emirates (UAE) and the United States. He pointed out that the UAE’s virtual asset regulatory authority has made considerable strides, while the U.S. seems to be lagging behind.
Additionally, Garlinghouse mentioned the recent Markets in Crypto-Assets (MICA) bill in the European Union, further highlighting the divergent paths taken by different jurisdictions in regulating cryptocurrencies.
Expressing his frustration, Garlinghouse regretted the fact that Ripple was expanding into the UAE while the U.S. regulatory environment remained uncertain. He criticized the prioritization of politics over policy in the U.S., which he believes has put the country at a disadvantage.
Garlinghouse went as far as advising entrepreneurs to think twice before starting their ventures in the United States. He suggested that the lack of clarity and regulatory framework in the country could impede innovation and hinder the growth of U.S.-based companies.
Garlinghouse also emphasized the need for a clear regulatory framework for cryptocurrencies in the U.S., particularly from the SEC. He acknowledged that the vast majority of individuals in the crypto and blockchain industry are law-abiding and want to comply with the rules.
He did, however, stress the importance of having well-defined regulations that provide guidance to businesses and individuals operating in the space.
In December 2020, the SEC initiated a lawsuit against Ripple, accusing them of unlawfully selling unregistered XRP tokens. Ripple has consistently disputed these claims, arguing that XRP does not meet the criteria of an investment contract under the Howey test.
Having endured for more than two and a half years, the case has posed substantial challenges for Ripple’s operations in the U.S. market. Garlinghouse hinted at a forthcoming verdict within the next three to six months, suggesting that the much-awaited resolution might be within reach.
Garlinghouse’s statements shed light on the immense financial resources Ripple has dedicated to defending itself in the lawsuit. They also underscore the contrasting regulatory approaches taken by different countries, with the U.S. facing criticism for its perceived lack of progress in providing a clear regulatory framework for cryptocurrencies.
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