The Securities and Exchange Commission (SEC) has proposed additional rules pertaining to the custody of clients' assets in digital exchanges to enhance protection for digital asset investors and to close any legal loopholes that may expose investors' assets to relevant risks.
The SEC began a public hearing on Wednesday to seek public comments on the proposed amendments to the regulations on the custody of clients' assets by digital asset business operators.
According to the draft of the proposed additional regulations, the new rules aimed to prevent any digital asset businesses from misappropriating their clients' assets for the benefit of other customers or people or for any objectives other than bank deposits.
The new rules will require digital asset businesses to deposit the client's fiat money with commercial banks or other banks established by specific laws and clearly stated in the deposit account that it is operated by digital asset operators for the benefit of clients only.
Digital asset business operators will also be required to develop an encrypted automated system that allows customers to ask the operators to withdraw or transfer the assets on command and ensure that the accounts cannot be accessed by others.
In addition, the accounts opened must also comply with the principles for decentralised approval authority, multi-sign approval authority, and check and balance, in a similar manner to custody of digital assets.
Seeking benefits from clients' fiat money will be prohibited except in the form of deposits with commercial banks. In this regard, digital asset business operators and the clients may agree on an interest rate not exceeding the actual rate the business operators receive from the commercial bank.
In the case of digital assets, seeking benefits for clients will also be prohibited, including in the form of digital asset lending to other persons.
The public hearing is scheduled to end on Sept 22. If the draft is passed, business operators shall comply with the regulations above within one month from the effective date.