Oct. 29, 2023
The SEC's actions fail to consider international implications: - Under the proposed rule, the SEC's custody requirements would unilaterally impose the SEC's singular view of appropriate custodial arrangements on global crypto markets and participants. This unilateral action fails to consider the cross-border nature of crypto markets and the wide array of market infrastructures and participants that have emerged to serve investors worldwide. By extending its reach beyond funds and securities into broader crypto asset markets, the SEC risks creating regulatory fragmentation and market uncertainty across jurisdictions. Such a unilateral expansion could undermine international comity and cooperation by purporting to regulate activities of non-U.S. participants operating outside the United States. It could also incite retaliatory actions by foreign regulators that adversely impact U.S. firms. The proposed rule would also likely disrupt cross-border capital flows by inhibiting the ability of U.S. advisers to access foreign crypto markets and non-U.S. custodial platforms. This could reduce market liquidity and investment opportunities for U.S. firms and investors. As a member of IOSCO, the SEC has generally committed to considering the extent to which a rule may conflict with the laws or regulations of another jurisdiction when evaluating regulatory proposals. But the Release does not reflect any effort to consult with foreign counterparts or consider alternative approaches to avoid conflict. The SEC should re-propose this rule only after substantive consultations with foreign regulators to identify workable solutions that align with emerging international standards.