Members of the United States Congress are seeking answers from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regarding the establishment of Special Purpose Broker-Dealer (SPBD) requirements. They are concerned that this move by the organizations, along with crypto trading and custody services provider Prometheum, is setting an unwelcome precedent.
Chairman of the House Financial Services Committee, Patrick McHenry, and subcommittee heads Bill Huizenga and French Hill, all Republicans, expressed their dissatisfaction with the SEC’s response to a previous inquiry regarding the classification of Ether (ETH) as a security and Prometheum’s intention to custody ETH. They sent a letter to SEC Chair Gary Gensler, stating their concerns about a potential precedent.
In response to the March 26 letter, Gensler stated that he was not aware of the details of Prometheum’s future business plans. However, the congressmen are concerned about the implications and are now requesting all nonpublic communications and records exchanged between the SEC and FINRA regarding Prometheum’s SPBD application process, allowable SPBD activities, digital asset securities eligible for custody by an SPBD, and the regulatory classification of ETH. They have set a deadline of June 5 for a response.
It is not uncommon for the SEC and FINRA to consult on rulemaking. Despite the disputed classification of ETH, Prometheum launched its custody service for ETH as a security on May 17.
McHenry and House Agriculture Committee Chair Glenn Thompson have resubmitted the March 26 letter to Gensler, now that Prometheum’s “future business plans” have become its current plans.
Prometheum has been a controversial figure since it received SPBD approval from FINRA in May 2023. Its CEO, Aaron Kaplan, expressed support for regulating crypto under existing securities laws during a Congressional hearing, which upset many in the crypto industry. Kaplan stated that Prometheum was specifically designed to comply with federal securities laws and create the first digital asset security trading platform subject to those laws.
In June, the crypto lobby group Blockchain Association filed a Freedom of Information Act request to obtain SEC documents related to Prometheum. The association’s counsel, Marisa Tashman Coppel, tweeted at the time, expressing suspicion about Prometheum’s approval for the SPBD and its timing amidst aggressive SEC enforcement.
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