Members of the United States Congress are seeking clarity from the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) regarding their discussions on the establishment of Special Purpose Broker-Dealer (SPBD) requirements. There are concerns that these organizations, along with crypto trading and custody services provider Prometheum, are setting a concerning precedent.
Chairman of the House Financial Services Committee, Patrick McHenry, and subcommittee heads Bill Huizenga and French Hill, who are all Republicans, expressed their dissatisfaction with the SEC’s response to a previous inquiry made by 48 members of the House Financial Services and Agriculture Committees. The inquiry focused on the classification of Ether (ETH) as a security instead of a commodity, as well as Prometheum’s intention to custody ETH as an SPBD.
In response to the March 26 letter, SEC Chair Gary Gensler stated that he was unaware of the specific details of Prometheum’s future business plans. However, the congressmen, concerned about the potential precedent being set, urged Gensler to provide 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 set a deadline of June 5 for a response.
It is not uncommon for the SEC and FINRA, a self-regulatory organization registered by the SEC, to collaborate on rulemaking. Prometheum moved forward with launching its custody service for ETH as a security on May 17, despite the ongoing dispute over its classification.
McHenry and House Agriculture Committee chair Glenn Thompson resubmitted the March 26 letter to Gensler alongside the new letter, highlighting that what were once Prometheum’s “future business plans” are now its current business plans.
Prometheum has been a source of controversy since it obtained SPBD approval from FINRA in May 2023. The CEO, Aaron Kaplan, expressed his support for regulating crypto under existing securities laws during a Congressional hearing, which sparked backlash from many in the crypto industry.
Kaplan stated to Cointelegraph, “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, expressed suspicion during that time, tweeting, “In the midst of aggressive SEC enforcement, Prometheum gets approval for first-of-its-kind Special Purpose Broker-Dealer (SPBD) for digital asset securities. Suspicious…”
The SEC now faces a challenging battle against the legal firepower of the crypto industry.