SEC Probing Investment Advisers Over Crypto Custody: Report

The U.S. Securities and Exchange Commission (SEC) is inquiring into registered investment advisers about whether they are following rules around custody of client crypto assets, according to a Reuters report that cites three unnamed sources.

The probe gathered pace in the aftermath of the implosion of crypto exchange FTX, the report said.

The SEC has been warning public companies that if they have a stake in the industry's recent crypto contagion, they'd better tell investors, as CoinDesk previously reported. The SEC asked if companies face any risks to their businesses “due to excessive redemptions, withdrawals or a suspension of redemptions or withdrawals, of crypto assets.”

The latest development is another sign of the market regulator increasing scrutiny at the intersection of traditional finance and crypto. The SEC is seeking details about what firms did to assess custody for platforms, including FTX, since clients' digital assets are typically stored with a third party.

One of the criteria for investment advisers to have custody of client funds or securities is that the firm is categorized as a "qualified custodian." The SEC says "qualified custodians can be banks, registered broker-dealers, futures commission merchants, or certain foreign entities."

The SEC declined to comment.

Read more: SEC Tells US-Listed Companies They’d Better Disclose Crypto Damage

UPDATE (Jan. 27, 13:30 UTC): Updates to add the SEC declined to comment.