The United States Securities watchdog is reportedly targeting crypto exchanges by proposing changes to the rule that would likely impact their services. Part of the proposed rule change is to stop digital asset service providers from providing services as regulated custodians.

Targeting Crypto Firms

According to sources familiar with the new development, the US Securities and Exchange Commission (SEC) is working on a draft guideline that would make it challenging for crypto firms to hold virtual assets on behalf of their clients. This, in turn, as claimed by insiders, could affect multiple hedge funds, pension funds and private equity firms that work with crypto entities.

Per the cited sources, there must be a vote of three out of five before the SEC officially decides on the proposal. Should the proposal be approved before then, the regulator will revise it using the feedback where applicable.

The financial watchdog has since 2019 mulled over the requirements needed to become a qualified crypto custodian. Those familiar with the issue disclosed that it is still being determined what changes the SEC is seeking to apply.

If the current proposal is finalized, crypto service providers might have to move their client’s digital assets to other platforms. Hence, those firms will be subject to “audits” concerning their custodial relationships or other factors as required by the commission.

US SEC Lays Fraud Allegations Against TerraLabs Founder

Meanwhile, the US SEC has laid fraud charges against Do Kwon, TerraLabs founder, and CEO. According to the SEC, Kwon offered unregistered securities to ignorant investors between 2018 and 2022.

The US financial watchdog added that all the tokens in the Terra network are unregistered securities. An SEC spokesman added that the move would make Kwon accountable for his actions which eventually led to the collapse of the network last May.

The SEC’s allegations against Kwon follow months of investigation into the collapse of the network. It is worth mentioning that the SEC and other regulators, with accusations against the Terraforms CEO, do not know his current location.