As the regulatory feud between the United States Securities and Exchange Commission (SEC) and Coinbase intensifies, the exchange has again taken a shot at the regulator. In a recent letter addressed to the SEC, Coinbase has called for some changes to the regulator’s proposed registered investment advisers (RIA) rules.
The SEC requires RIA firms to adhere to a set of rules to safeguard clients’ wealth and make sure investors are informed and treated fairly. Despite being a “qualified custodian,” Coinbase believes the revised RIA rule makes “unwarranted assumptions about custodial practice.”
In the letter, Paul Grewal, chief legal officer (CLO) of Coinbase, criticizes the proposed rules and calls it “misguided.” He believes that the proposal titled “Safeguarding Advisory Client Assets, Proposed Rule 223-1” is unfair and calls changes to it.
Grewal highlights the need for having numerous revisions saying that certain assumptions made on the proposal are unnecessary and inappropriate and could prove “detrimental” to consumer protection for various asset classes. Under this, he includes the example of crypto as “whether or not they are securities.”
Furthermore, in the letter Grewal suggests that the regulator should continue to define state trust companies and other state-regulated financial institutions as “qualified custodians.” Notably, he also proposes enabling limited exposure to non-qualified custodians and withdrawing the ban on RIA client trades on crypto exchanges, which are not qualified custodians.
The Coinbase CLO concludes the letter by targeting SEC’s approach saying that it should be for the benefit of the masses and not a means to limit innovation. He says that having clear regulatory standards for the crypto sector is of utmost importance, a thought the firm has repeatedly highlighted in recent times especially in regards to SEC.
Grewal further says that “the SEC’s rule should tailor standards of care by asset class and client type” while simultaneously allowing sophisticated clients to negotiate their own contracts. He adds:
We appreciate the chance to weigh in and we look forward to engaging with the SEC to get this right – public rulemaking is a critical step in bringing further clarity to the market.
However, Coinbase is not the only entity that has criticized the regulator on the subject. JP Morgan and the Small Business Administration (SBA) also called out the requirements for qualified custodians to hold assets laid by the regulator. They suggested that it would affect smaller investment advisers and force them to merge or leave the business. The proposal can’t be finalized until the SEC has reviewed all of the public comments.
In recent times, Coinbase has been under immense regulatory scrutiny. In March, the SEC sent a Wells Notice to the firm hinting at a potential enforcement action. Following that, the verbal attack between both the entities intensified.
The regulator has accused Coinbase of violating federal securities and for listing and selling unregistered securities. After receiving the notice, the firm executives tried staying optimistic which was also ridiculed by some in the crypto industry for being unrealistic. In its response the exchange retaliated to the regulator with a legal notice pointing out the absence of sufficient clarity. The exchange has often criticized the regulator for being anti crypto given the number of enforcement actions it has initiated in the past months.
Recently, Brian Armstrong, CEO of the firm, also said that the SEC is the only entity which feels that existing crypto regulation is sufficient. Nonetheless it’ll be interesting to see if the feud between both the entities bring on larger changes to the regulatory environment.