House Committee Questions SEC's Decision on Prometheum Broker Approval

House Committee Questions SEC’s Decision on Prometheum Broker Approval

Updated: 16 August 2023

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The U.S. Securities and Exchange Commission (SEC) has recently come under scrutiny from members of the House Financial Services Committee (HFSC). These politicians, led by Committee chair Patrick McHenry (R-NC), have expressed concerns over the SEC’s approval of Prometheum, a relatively unknown crypto broker. The Republicans on the Committee have labeled this approval as “shady” and are vocally questioning the timing of this decision, given the broader context of cryptocurrency regulation in the United States.

🚩Letters from Congress over SHADY APPROVAL of #Prometheum receiving a (Special Purpose Broker-Dealer) SPBD License. https://t.co/E8KLEDoFZ0

— Digital Perspectives #LevelPlayingField (@DigPerspectives) August 15, 2023

A significant part of the controversy surrounds the role of the Financial Industry Regulatory Authority (FINRA). Despite being supervised by the SEC, FINRA approved Prometheum as the first-ever Special Purpose Broker-Dealer (SPBD) for digital assets. Notably, this approval occurred more than two years after the initial regulatory framework was established in December 2020. During this period, no other cryptocurrency exchange secured approval under this framework. The HFSC is raising eyebrows at this, considering it noteworthy that no other applicants, some with extensive operating histories, were approved before Prometheum.

Last week, in a letter addressed to the SEC, the HFSC raised concerns suggesting that the timing of this approval might have been strategically designed to show that existing legislation is adequate and a new regulatory framework for digital asset securities isn’t necessary. This letter, which was made public on Tuesday, casts a critical eye on the SEC’s decision-making process.

The timing of the approval raises concerns that it was aimed at demonstrating that legislation is not needed because there is a workable regulatory framework for the custody of digital asset securities

It’s worth mentioning that during the same month FINRA approved Prometheum, the HFSC held hearings specifically related to the legislation of digital assets. The goal was to create definitive guidelines for the types of crypto assets over which the SEC would have jurisdiction. SEC Chairman Gary Gensler, who maintains that the current securities laws are sufficient and clearly defined, has used Prometheum’s approval to illustrate that there is a clear route for existing companies to achieve compliance.

Adding to the intrigue, Prometheum, despite its claims of being a revolutionary solution for regulated digital asset offerings, has not yet catered to a single customer, according to the HFSC. The committee also highlights that Prometheum has been non-transparent, avoiding public disclosure of the digital asset securities it plans to support on its platform.

A Complex Ownership Structure

Further complicating matters is Prometheum’s ownership structure. The HFSC’s letter has highlighted potential national security concerns due to Prometheum being 20% owned by international conglomerate Wanxiang. According to the committee, Wanxiang has significant connections to the Chinese Communist Party (CCP). However, a spokesperson for Prometheum has countered this by stating that the SEC and the Committee on Foreign Investment in the United States (CFIUS) have reviewed Prometheum’s former affiliations with Wanxiang and its affiliates.

As a final note, the HFSC has demanded that the SEC and FINRA disclose all documents and communications pertaining to Prometheum’s approval. They have set a deadline for this disclosure: 5 pm on August 22, which is exactly one week from today.

In this unfolding situation, the HFSC is clearly urging for transparency and clarity, challenging what they perceive to be a dubious approval process by the SEC.