SEC tightens custodial rules for digital assets

SEC tightens custodial rules for digital assets

The Securities and Exchange Commission (SEC) has imposed tighter rules on the custody of clients' assets in digital asset businesses to protect investors against misappropriation of assets as well as fraud.

The amended regulations serve as a follow-up to the SEC's public hearing on draft regulations on Dec 3, 2021, as well as the SEC's resolution to draw up amendments to the regulations for the custody of customers' assets on Nov 4, 2021.

The new regulations have been effective since March 1. The transitional provisions allow digital asset operators a period of 3-6 months to develop necessary work systems in compliance with the governing regulations.

The revisions have three primary changes that will promote protection of digital asset investors, said the SEC.

First, digital asset operators are strictly prohibited from using a client's assets, fiat money and digital assets for the benefit of another client or any other persons. A client's assets shall be reconciled every business day to ensure accurate and updated records of assets.

Second, withdrawal or transfer of fiat money from clients' accounts shall comply with the principles of decentralised approval authority, multi-sign approval authority, and checks and balances.

For a withdrawal or transfer of fiat money of 2 million baht to 50 million baht, digital asset business operators must seek approval from two authorised persons. For a withdrawal or transfer exceeding 50 million baht, another independent authorised person is required to check the transaction.

In addition, evidentiary documentation of each transaction must be kept for retrieval upon the SEC's request for inspection.

Finally, digital asset business operators may not seek benefits from clients' fiat money, except from deposits with commercial banks.

In this regard, digital asset business operators and their clients may agree on an interest rate that does not exceed the actual rate the business operators receive from commercial banks.

In the case of digital assets, seeking benefits for clients shall be prohibited, including deposit and lending to other persons, except in the form of digital asset investment with licensed digital asset fund managers.

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