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A group of nine lawmakers in the U.S. House of Representatives are seeking clarity from the country’s financial regulators regarding broker-dealer custody of digital currencies. The nine believe that this could spark greater adoption of digital securities, which would improve the functioning of the securities markets.
The lawmakers penned the letter to the Securities and Exchange Commission (SEC) chair Jay Clayton, urging him and the Financial Industry Regulatory Authority to stop lagging behind in the regulation of broker-dealer custody of digital securities. They referenced the July guidance by the Office of the Comptroller of the Currency in which he allowed national banks to provide digital currency custody.
“In light of this development, we encourage the SEC to develop requirements necessary to custody digital securities and enable FINRA to approve broker dealer applications that meet these requirements,” they wrote.
The SEC and FINRA acknowledged the issue in a joint statement in July 2019. At the time, they claimed to be addressing a number of issues before they approve digital currency firms to become broker-dealers. This includes whether the digital currency in consideration falls under securities as per the Securities Investor Protection Act (SIPA).
However, as the lawmakers noted, the two agencies haven’t followed up since acknowledging the issue over a year ago. They believe that this lack of guidance “threatens to stymie the progress of the digital security industry in the United States.”
“Failing to approve broker-dealer applications involving the custody of digital securities leaves the industry without the infrastructure to operate in a regulated way.”
The bipartisan group consisted of Minnesota’s Tom Emmer, California’s Ro Khanna. Florida’s Darren Soto, Texas’ Dan Crenshaw, North Carolina’s Ted Budd, South Carolina’s Ralph Norman, Illinois’ Bill Foster, Arizona’s David Schweikert and Ohio’s Warren Davidson.
In their letter, which they also sent to the FINRA CEO Robert Cook, the Congressmen criticized the two agencies’ approach to digital currency broker dealer applications. The two haven’t outright denied any broker dealer applications so far. This would make these applications eligible for appeal. Instead, they have ignored these applications, usually for years or asked the applicants to withdraw their applications.
They proposed three steps that they believe the SEC should take. These are confirming banks can provide digital securities custody; advice FINRA on the requirements for digital securities broker-dealers; and instruct FINRA to approve broker-dealer applications if they meet the set requirements.