FTX collapse fuels more scrutiny of firms who have custody of client crypto funds

The recent downfall of cryptocurrency exchange FTX ( FTT-USD ) was said to have triggered the U.S. Securities and Exchange Commission to intensify its scrutiny of registered investment advisors who directly or indirectly have custody of client crypto assets. The multi-month long probe over whether investment advisors are abiding by regulations around custody of client crypto assets gathered pace after FTX ( FTT-USD ) filed for bankruptcy on Nov. 11, 2022, Reuters reported, citing three sources familiar with the inquiry. The SEC has done a lot since late last year to safeguard crypto-focused customers and help prevent firms with exposure to the space from blowing up in the same way that FTX ( FTT-USD ) did, i.e., poor bookkeeping, lack of internal controls and co-mingling of client funds. For example, the regulator advised publicly-traded companies on Dec. 8 to disclose to investors any potential impacts from the languished crypto market. Enforcement staff at the SEC are seeking information about what traditional financial (TradFi) firms did to evaluate custody for trading platforms, including FTX ( FTT-USD ), one of the sources told Reuters, as clients' crypto is usually stored with a third party. The SEC did not immediately respond to a request for comment by Seeking Alpha. On Tuesday, the SEC delayed approval for crypto firms looking to go public .