Key Points
Request for Clarification on Ethereum Custody
Republican lawmakers, including House Financial Services Committee Chair Patrick McHenry and House Agriculture Committee Chair Glenn Thompson, have asked Securities and Exchange Commission (SEC) Chair Gary Gensler to clarify the SEC’s position on Ethereum (ETH) custody by Prometheum.
The lawmakers, including French Hill, Dusty Johnson, Tom Emmer, and Warren Davidson, expressed their concerns about the lack of transparency in the SEC’s Special Purpose Broker-Dealer (SPBD) regime.
They also voiced their worries about the potential effects of allowing Prometheum to continue with its custody services for ETH.
Recognition of Ethereum as Non-Security
In a letter sent on Tuesday, the lawmakers emphasized the SEC and Commodity Futures Trading Commission’s (CFTC) previous recognition of Ethereum as a non-security digital asset.
They pointed out that the SEC’s current regulatory framework does not allow SPBD custody of non-security digital assets.
The lawmakers warned that allowing Prometheum to proceed under these circumstances could have serious consequences for the digital asset markets.
The Republican lawmakers asked Chair Gensler to clarify the SEC’s stance on several key aspects.
These include the ability of SPBDs to custody non-securities, the SEC’s approach to addressing SPBD non-compliance, Ethereum’s regulatory classification, and the SEC’s specific position regarding Prometheum’s recent announcement.
The letter also raised concerns about the lack of a clear definition for “digital asset securities” and the SEC’s failure to provide comprehensive guidance or propose rules for asset classification within the digital asset marketplace.
The lawmakers expressed their disappointment with Chair Gensler’s refusal to acknowledge Ethereum as a non-security digital asset.
They stated that his “unwillingness” to clarify the treatment of ETH has contributed to the confusion and uncertainty surrounding its classification.
Call for Regulatory Clarity
The lawmakers criticized the SEC for creating “uncertainty” among regulated entities by failing to identify which digital assets should be considered “digital asset securities.”
They referenced temporary frameworks established to facilitate trading and custodial services for digital asset securities.
The SEC’s Division of Trading and Markets issued a no-action letter to FINRA in September 2020 outlining conditions for registered broker-dealers to operate an Alternative Trading System (ATS) trading digital asset securities.
The letter stressed the need for regulatory clarity and a comprehensive approach to digital asset classification to minimize uncertainty and foster growth within the digital asset ecosystem.
They urged Chair Gensler to address their concerns promptly, considering the potential implications for market participants and the broader digital asset markets.
Chair Gensler and the SEC have not yet formally responded to the letter, but the industry is waiting for further developments as the regulatory landscape for digital assets continues to evolve.
