Digital assets were not around when the U.S Custody Rule under the Investment Advisers Act of 1940 was enacted or when it was amended in 2003.
However, the level of interest in the new assets class, as well as the number of individuals or businesses, offering custodial and investment advice to cryptocurrency holders have prompted the U.S SEC to seek more insight on whether the new industry is compatible with existing laws.
Specifically, the regulators want industry experts to share their opinion on how the Custody Rule on non-delivery versus payment (non-DVP) transaction process affects investment advisers and custodial trading services dealing in digital assets.
Non-DVP transactions, in this case, would refer to digital assets trades where the buyer who may be an individual or institution, makes payment first before the custodian or exchange delivers the assets.
Such transactions could also be vice versa, that is, the custodian or exchange delivers the digital assets before receiving payment for the deal. It is directly the opposite of DVP trades where payment and delivery happen almost simultaneously.
In a post detailing what the SEC wants to know about non-DVP trades, Katherine Wu from New York-based crypto research agency, Messari, states that the regulators are concerned about:
What type of digital asset instruments trades on a non-DVP basis?
The settlement process for peer-to-peer digital asset transactions and what risk it presents to the parties.
The settlement process and risks involved in intermediated digital assets transactions such as those that take place on a crypto exchange or over-the-counter desks.
The extent to which investment advisers are portraying digital assets as “securities or “funds” to investors.
The good news about the latest development, however, is that regulators want to entertain public opinion on a matter that will have a significant impact on the crypto industry before adjusting the Custody Rule.
We cannot say for sure when the amendments will take place. However, the latest stance may likely go down well with the crypto industry experts and attract little to no criticism than the other vital moment when the SEC adopted existing securities law for nearly all ICO tokens.
Meanwhile, we reported a similar development last week in Canada where regulators asked for public comments on newly proposed rules for cryptocurrency exchanges