SIFMA urges SEC to take principle-based approach to regulate digital assets
28 May 2021 US
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SIFMA has filed a letter to the SEC commenting on the framework to allow broker dealers to custody digital asset securities in a way that meets the requirements of Rule 15c3-3 under the Securities Exchange Act of 1934.
The Securities and Exchange Commission (SEC) asked for responses to its statement in December 2020, and requested comments on best practices with respect to custody of digital asset securities to consider in connection with any future rule-making or commission action in this area.
The Securities Industry and Financial Markets Association (SIFMA) believes that the SEC should take a principle-based approach to regulate activities related to digital asset securities.
This is in order to allow a broker-dealer the flexibility to develop best practices and comply with its existing regulatory obligations, rather than focusing on the underlying technology, such as distributed ledger technology, as it and other regulators have done in the past.
In its letter, SIFMA asked the commission to take into consideration the definition of a digital asset security; the effectiveness of special purpose broker-dealers; and proposed control frameworks and industry best practices.
In addition, the association has recommended that the SEC makes clearance and settlement considerations as well as investor protection.
SIFMA says it acknowledges and appreciates the commission’s concerns about the unique attributes of digital asset securities and the desire to protect investors while allowing broker-dealers to engage in customary broker-dealer activities with respect to digital asset securities.
However, a unique, or different, risk profile does not necessarily mean risks are greater with respect to digital asset securities compared to traditionally represented securities, according to the association.
SIFMA suggests the statement’s restriction of only allowing broker-dealers who exclusively engage in activities related to digital asset securities to provide custody of such securities will not best serve the interests of investors in every case.
SIFMA also believes any future rulemaking by the SEC should not be based on a general distinction between digital asset securities and traditional securities.
Instead, SIFMA states it should be technology neutral and allow firms the ability to evaluate what digital securities they will support.
It is added that it should take into consideration the relevant operational risks and regulatory requirements related to the technology underlying the digital asset security and unique configuration and facts related to a particular digital asset security.
SIFMA recommends that investor disclosures around the custody of digital assets should distinguish between factors that may contribute to the risk of loss or theft of digital asset security.
Meanwhile, factors that may contribute to the operational performance of a particular digital asset network, and potentially the value of a particular digital asset should also be considered.
To discover more about the world of digital assets, check out Asset Servicing Times’ Digital Assets Handbook 2021, and the latest feature on the custody of digital assets.
The Securities and Exchange Commission (SEC) asked for responses to its statement in December 2020, and requested comments on best practices with respect to custody of digital asset securities to consider in connection with any future rule-making or commission action in this area.
The Securities Industry and Financial Markets Association (SIFMA) believes that the SEC should take a principle-based approach to regulate activities related to digital asset securities.
This is in order to allow a broker-dealer the flexibility to develop best practices and comply with its existing regulatory obligations, rather than focusing on the underlying technology, such as distributed ledger technology, as it and other regulators have done in the past.
In its letter, SIFMA asked the commission to take into consideration the definition of a digital asset security; the effectiveness of special purpose broker-dealers; and proposed control frameworks and industry best practices.
In addition, the association has recommended that the SEC makes clearance and settlement considerations as well as investor protection.
SIFMA says it acknowledges and appreciates the commission’s concerns about the unique attributes of digital asset securities and the desire to protect investors while allowing broker-dealers to engage in customary broker-dealer activities with respect to digital asset securities.
However, a unique, or different, risk profile does not necessarily mean risks are greater with respect to digital asset securities compared to traditionally represented securities, according to the association.
SIFMA suggests the statement’s restriction of only allowing broker-dealers who exclusively engage in activities related to digital asset securities to provide custody of such securities will not best serve the interests of investors in every case.
SIFMA also believes any future rulemaking by the SEC should not be based on a general distinction between digital asset securities and traditional securities.
Instead, SIFMA states it should be technology neutral and allow firms the ability to evaluate what digital securities they will support.
It is added that it should take into consideration the relevant operational risks and regulatory requirements related to the technology underlying the digital asset security and unique configuration and facts related to a particular digital asset security.
SIFMA recommends that investor disclosures around the custody of digital assets should distinguish between factors that may contribute to the risk of loss or theft of digital asset security.
Meanwhile, factors that may contribute to the operational performance of a particular digital asset network, and potentially the value of a particular digital asset should also be considered.
To discover more about the world of digital assets, check out Asset Servicing Times’ Digital Assets Handbook 2021, and the latest feature on the custody of digital assets.
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