The US Securities and Exchange Commission (SEC) is going to require publicly traded cryptocurrency trading firms and custodians to report clients' cryptocurrencies as assets and their obligation to the clients as liabilities, The Wall Street Journal has learned.
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Previously, crypto firms could disclose the total value of clients' assets apart from their own balance sheets. This is how many brokers work today because of legal precedent that has established that, in case of bankruptcy, the assets on balance sheets also belong to the clients. This time, however, the SEC believes that this law does not work properly with crypto:
"The obligations associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not crypto-assets, including technological, legal, and regulatory risks and uncertainties. These risks can have a significant impact on the entity’s operations and financial condition."
The timeline for the change remains unclear. However, in January this year, SEC Chair, Gary Gensler, warned that the regulator will impose more regulatory burden on cryptocurrency exchanges if they fail to take steps in coming months to be more directly regulated. Gensler particularly said that he had asked staff "to look at every way to get these platforms inside the investor protection remit."
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