Crypto Exchanges May Be Required to Keep Client Funds Separate, Report Says

The Biden administration will ask Congress to make it so crypto exchanges have to keep their customers’ money separate from their own corporate funds, CoinDesk reported Wednesday (May 18).

The report noted this could possibly limit the way the industry conducts business. This was reportedly prompted by Coinbase’s recent announcement that customers’ money might be jammed up if the company declared bankruptcy.

Because of this, officials have said lawmakers could fix this issue by making a future legal framework that forces crypto firms to keep customer assets walled off. This is a normal rule for financial firms like futures platforms. However, crypto assets have mingled their funds with customers’ holdings in the same pot, which the Biden administration wants to put an end to.

For example, Coinbase said in a filing to the Securities and Exchange Commission (SEC) that if it went bankrupt, “the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.”

In the next few weeks, federal officials will try and implement the change, putting it into any crypto bill Congress looks into.

Companies hosting the crypto wallets have a need for close federal oversight, and the administration thinks those platforms should permit pooling of assets so the companies can manage trades internally, rather than put all their moves on a blockchain.

PYMNTS wrote that Janet Yellen, the U.S. Treasury Secretary, said there should be more regulations on stablecoins due to the collapse of the Terra tokens.

Read more: Yellen: Terra’s Fall Shows Stablecoin Dangers

“I wouldn’t characterize it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kind of risks that we have known for centuries in connection with bank runs,” Yellen told the U.S. House Financial Services Committee.