Industry representatives have cast doubt on the legality and impact of the United States securities regulator’s offer to expand custody regulations. 
An offer by the United States securities controller to tighten rules around crypto custody has been met with opposition from at least two proponents of the industry, according to newly filed letters.
On May 8 the deadline for comments on the offer — the crypto industry advocacy body Blockchain Association filed its letter to the Securities and Exchange Commission (SEC) criticizing its offer to amend its custody regulation.
Three days previously, a such letter was sent by Web3 venture capital fund Andreessen Horowitz (a16z).
Marisa Tashman Coppel, a policy lawyer at the association, tweeted on May 8 that the regulation would “ drastically curtail investment in digital assets ” and claimed that in its current form, the regulation is “ unlawful. ”
The same day, a16z general counsel Miles Jennings tweeted its letter, saying the enterprise “ did not mince words ” and called the SEC to offer a “ misguided and transparent attempt to wage war on crypto. ”
In its letter, the Blockchain Association provided over a dozen separate arguments to rebuff the SEC. Among different claims, it spoke the regulation exceeds the SEC’s authority, would inhibit advisers from transacting with crypto exchanges, and would leave investors ’ assets at further threat.
A16z detailed such arguments in its letter but focused further on its effects on registered investment advisers, namely that counsels would be prevented from utilizing crypto and the regulations could violate the duty of care the SEC requires of similar enterprises.
It called the prohibition against advisors being capable to trade crypto on centralized exchanges “ illegal, unworkable, and dangerous. ”
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Yet to be approved by the SEC, the February offer would refer further stringent regulations on investment advisers in the custody of assets, inclusive of crypto.
Enterprises would require to properly segregate assets and custodians will be needed to have annual audits from public accountants among a raft of other transparency measures.
Gensler has specifically taken aim at crypto exchanges with the regulation and spoke that some crypto trading platforms giving custody services aren't actual “ qualified custodians. ”
The offer even saw pushback from the SEC. Commissioner Hester Pierce questioned the regulation’s “ workability and breadth ” and its seeming targeting of crypto and crypto-related companies.
(JESSE COGHLAN, Cointelegraph, 2023)