GOP Lawmakers Request SEC Clarity on Custody of Ethereum

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Regulatory Guidance Requested for Custody of Non-Security Digital Assets

A group of Republican lawmakers, including the chairmen of significant House committees, have formally requested SEC Chair Gary Gensler to provide clear guidance regarding the regulatory stance on the custody of non-security digital assets by Special Purpose Broker-Dealers (SPBD). The March 26 letter specifically demands clarity on the status of Ethereum (ETH) and further requests the regulator to establish clear definitions for various terms related to crypto, digital assets, securities, and investment contracts. The letter, signed by 48 members of Congress, including House Financial Services Committee chair Patrick McHenry and House Committee on Agriculture chair Glenn Thompson, sets a deadline of April 9 for a response to their inquiries.

Ethereum’s Regulatory Status

According to the letter, the SEC has yet to propose a rule or provide comprehensive guidance for the classification of assets, and the term “digital asset securities” remains undefined. Despite public statements from both the SEC and the CFTC identifying ETH as a non-security digital asset, concerns linger over the lack of transparency in the SEC’s SPBD regime and the potential regulatory consequences of permitting custody services for such assets. The lawmakers pose a critical question: “Is ETH a digital asset security?” Depending on the answer, a series of follow-up questions arise, indicating the lawmakers’ intent to gain clarity on this issue.

The letter was prompted by Prometheum Inc.’s recent announcement that its subsidiary, Prometheum Ember Capital, plans to offer custody services for Ethereum to institutional clients despite the current regulatory framework not explicitly permitting SPBD custody of non-security digital assets. Lawmakers have expressed concern over the potential market repercussions of allowing such custody services to proceed, warning of possible severe consequences if regulatory clarity is not provided promptly.

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Increased Regulatory Concerns

Lawmakers highlighted the discrepancy between the SEC’s enforcement actions and the historical recognition of ETH as a non-security digital asset, criticizing the lack of comprehensive guidance or rules for asset classification in the digital asset marketplace. They stated that this uncertainty has exacerbated challenges in the ecosystem, making it difficult for regulated entities to comply with SEC regulations. Additionally, the letter emphasized the potential broader implications of the SEC classifying ETH as a digital asset security, including impacts on commodity derivative exchanges registered with the CFTC and the availability of ETH Futures for trading.

Furthermore, lawmakers warned that such a classification could lead to significant disruptions for market participants, potentially limiting access to essential risk management tools and causing price dislocation in the ETH market. The letter concludes by stressing the necessity of clear and consistent regulatory guidance to foster growth and innovation within the digital asset space and prevent a “chilling effect” on US digital asset markets that could arise from continued regulatory uncertainty.

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About Post Author

Chris Jones

Hey there! 👋 I'm Chris, 34 yo from Toronto (CA), I'm a journalist with a PhD in journalism and mass communication. For 5 years, I worked for some local publications as an envoy and reporter. Today, I work as 'content publisher' for InformOverload. 📰🌐 Passionate about global news, I cover a wide range of topics including technology, business, healthcare, sports, finance, and more. If you want to know more or interact with me, visit my social channels, or send me a message.
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