Fireblocks Obtains NY Licensure, Launches Custodian Program Amid SEC Restrictions

Fireblocks, a cryptocurrency safekeeping specialist, is planning to establish a limited-purpose trust company under the supervision of the New York State Department of Financial Services (DFS). This move comes after proposals from the US Securities and Exchange Commission (SEC) last year that would narrow down the types of institutions that registered investment advisors (RIAs) could put their customers’ crypto into, in theory. Only firms such as registered broker-dealers and federally chartered banks would meet the qualification criteria under the proposed SEC rules, which is at odds with the current licensing system. However, Fireblocks CEO Michael Shaulov has stated that the company will still promote self-custody while recognizing that some clients may require a custodian for regulatory or risk reasons. Fireblocks SVP of Partnerships Adam Levine clarified that the company remains committed to innovation in self-custody, but a lack of qualified custodians in the US is becoming increasingly apparent. The Fireblocks Trust Company, pending final regulatory approval, will provide cold storage custody to US clients. The company is also setting up a global custodian partner programme, which will commence this quarter with an initial group of businesses located in the US, the UAE, the UK, Singapore, Thailand and Australia. There is a political context to this proposal. In February of last year, proposed amendments to the custody regulation by the SEC would, in principle, significantly restrict the types of organisations that RIAs could deposit their clients’ cryptocurrencies into, as part of a contentious and yet-to-be-finalised package known as SAB 12. Prometheum, a crypto-native startup, became the first organisation to earn a special-purpose broker-dealer permit under SEC rules and is currently licensed to store, trade and settle transactions involving cryptosecurities. Nonetheless, Kaplan acknowledged that the business is “excited to be approaching the general public introduction of custodial services for institutional customers”. The SEC’s stance on SAB 121, as it stands, in both federal and state regulatory perspectives, is believed by Fireblocks to have a detrimental impact on banking organisations’ capacity to create responsible uses of distributed ledger technology (DLT) more widely. “Our stance is not to criticise any regulator, any political party, or the government,” Levine remarked. “We’re simply implementing the existing laws and frameworks. We know there’s a business requirement based on our clients, based on the market opportunity. We understand what the present regulatory framework is, and SAB 121, as it is, in the eyes of federal regulators and state regulators. We believe that pursuing the trust licence to become a qualified custodian was the appropriate course of action.” Fireblocks’ programme for qualified custodians will involve licensed custodians utilising Fireblocks’ technology, with at least two providers being talked to in each of the locations cited by Levine. The trust company, which is anticipated to go live within the next few months, will serve as the initial US qualified custodian in the programme, with further additions anticipated. Edited by Sheldon Reback.