Reportsย by regulations established by the Unitedย States Securities and Exchange Commission (SEC), the 1st special purpose broker-dealer license has been granted, allowing a digitalย currency company to handle securities backed by digital assets. Thereย is, onย theย otherย hand, a catch: Bitcoinย (BTC) cannot be supported.
The clearance, reportsย by Prometheum Ember Financialย resources, a New York-based company created in 2021, enables it to act as a certified custodian and safekeep digital investment assets on behalf of individual and institutional clients. The company sees it as a wholeย lotย of step in establishing the judicialย system and permits necessary to soonerย orย thereafter allow its parent company, Prometheum Inc., to offer digitalย currency trading to customers.
Conflicts with the government
We have previously informed that, during the last part of 2022 and 1st part of inย theย year, the Unitedย States Government has been engaged in a series of actions against digitalย currency corporations and, through its agencies CFTC and the SEC, has arguedย that cryptocurrency cryptoย tokens are securities and outrightly sued some exchanges. Numerous critics have spoken against these actions, claiming that the Unitedย States Government is driving cryptocurrency innovation out of the country. Nonetheless, we have seen corporations leave theย Unitedย States for greener pastures in Europe (France) and Asia (Hong Kong).
Theย latestย information of Prometheum Ember Capitalโs licenseย approval mayย be seen as indicating that it is possible to register as a digitalย currency business with Unitedย States regulatoryย authorities. The bulkย of digital assets, reportsย by SEC Chair Gary Gensler, are securities, and corporations that sell them to Unitedย States customers must register with the SEC. Nonetheless, numerous cryptocurrency corporations have disputed that claim, arguing that Congress should take action to enact new legislation because theย present regulations are ineffective.
Prometheum was established in 2017 by a group of Wall Street attorneys and it describes itself as a โblockchain-focused company building an end-to-end ecologicalย system for the trading, custody, and settlement of digital investment securities.โ
Reportsย by co-chief executive officer of Prometheum Inc. Aaron Kaplan,
the companyโs entire thesis isย theย factย that digital assets are securities, and the best way to regulate them is under the federal securities laws.
Under previous Chair Jay Clayton, the SEC announced a policy statement in 2020 that outlined a process for enterprises involved in digitalย currency to become registered as special purpose broker dealers. Such applications are reviewed and approved by FINRA, the Financial Industry Regulatory Authority. Corporations must fulfill regulations and can only own digital investment securities, not traditional securities or cryptocurrency assets that arenโt securities, like Bitcoin, toย beย ableย to receive the license.
Prometheum rejected to provide a list of the cryptoย tokens it will support, stating that decision-making over which assets qualify as digital investment securities would be made internally.
Kaplan said:
We share the same opinion as Chairman Gensler and hope inย orderย toย facilitate aย lotย of those assets. Chairman Gensler has stated that the vast bulkย of digital assets, essentially everything except for Bitcoin, is a security.
In its press release, the company stated:
With the approval of the SPBD, Prometheum Financialย resources will serve as a qualified custodian. Standing onย theย otherย sideย to cryptocurrency exchanges and other platforms of trading in the Unitedย States that operate only under state licenses, Prometheum Financialย resources is subject to the Securities and Exchange Act (โSEAโ) 15c3-3 Customer Protection Rule as required under federal securities laws.
Limited Route
The companyโs selection of items is asย ofย now constrained. The company cannot combine its broker-dealer license with an alternative trading systems license to enable consumers to trade digital assets because it has not isย still received clearance for clearing and settling under that license.
Reportsย by a company representative, Prometheum Ember anticipates getting more approval to clear and settle transactions soon. Inย addition, it has a company with an alternative trading system license. In the long run, clients will be able to trade digitalย currency through Prometheumโs subsidiaries.
Regardlessย of the restrictions on what a business may now do with it, some legal specialists assertย that theย preliminary approval of this license indicates a wholeย lotย of milestone.
Gary DeWaal, senior counsel at Katten and a previous Unitedย States Commodity Futures Trading Commission enforcement attorney, stated that the notice โnow opens the door for an SEC registered entity to have custody over some digital assets securities in this space.โ Whichย shows that a path exists.
Obtaining the special broker license, onย theย otherย hand, canย potentially be challenging for already- established cryptocurrency exchanges.
Reportsย by Russell Sacks, partner at King & Spalding, โthe conditions in the December 2020 release are quite complex and rigid and create a very complex web of policies and procedures that must be put in place toย beย ableย to meet the requirements.โ โThe barriers to establishing special purpose broker dealers that are designed to deal with securities relating to digital assets are still very much present.โ
DeWaal claimedย that defining what constitutes a digital investment security and what does not remain the most important challenge in achieving regulatory clarity. Theย preliminary license acceptance is โnot the be-all, end-all solution,โ he declared.
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