House Republicans Pressure SEC to Clarify Ethereum’s Security Status for Prometheum’s Custodial Services

House Republicans are pressing the U.S. Securities and Exchange Commission (SEC) to provide clear guidance regarding Ethereum’s classification and the regulatory implications for Prometheum’s custody services.

Members of the United States House Financial Services Committee and House Agriculture Committee have raised significant concerns regarding the SEC’s approach to Ethereum (ETH) regulation.

Their focus is primarily on Prometheum, a crypto firm intending to offer institutional custody services for ETH. This initiative has prompted calls for regulatory clarity and action from lawmakers.

Addressing Regulatory Ambiguity

In a letter dated March 26 and directed to SEC Chair Gary Gensler, key lawmakers including House Financial Services Committee Chair Patrick McHenry and Vice Chair French Hill emphasized the importance of addressing Prometheum’s plans to provide custody services for ETH through its subsidiary, Prometheum Capital.

They cautioned that the SEC’s handling of this matter could have profound and potentially irreversible effects on digital asset markets. Lawmakers are particularly concerned about the uncertainty surrounding the regulatory treatment of Special Purpose Broker-Dealers (SPBD) and their role in custodial services for non-security digital assets like ETH.

Despite previous indications from both the SEC and the Commodity Futures Trading Commission (CFTC) recognizing ETH as a non-security digital asset, questions persist regarding its regulatory classification and permissible activities within the existing regulatory framework.

#NEW: Republicans on the House Financial Services Committee and @HouseAgGOP sent a letter to @SECGov Chair Gensler urging his agency to clarify its position with respect to SPBD Prometheum’s custody of #ETH.

Read more 🔗https://t.co/MGGB9NAvWi pic.twitter.com/1U8lqMw8Ao

— Financial Services GOP (@FinancialCmte) March 26, 2024

The letter underscores the lack of clarity in the SEC’s rules regarding SPBD custody of non-securities and the agency’s apparent inaction in addressing potential compliance issues.

Demanding Clarity on Ethereum

Lawmakers also expressed worries about the absence of comprehensive guidance or a defined regulatory framework for digital asset securities, which exacerbates uncertainty in the digital asset space.

They draw attention to Chairman Gensler’s hesitance to definitively classify ETH, which has only added to the confusion surrounding its regulatory status. Despite previous acknowledgments of ETH as a non-security digital asset, the SEC’s failure to provide unequivocal clarity has left market participants grappling with uncertainty.

The implications of the SEC’s stance extend beyond regulatory ambiguity, potentially impacting the broader digital asset marketplace. Lawmakers caution that classifying ETH as a digital asset security could disrupt existing commodity futures markets and jeopardize crucial risk management tools, ultimately stifling innovation and market growth.

In conclusion, the letter urges the SEC to promptly address the concerns raised and provide much-needed clarity on the regulatory treatment of ETH. Lawmakers emphasize that failure to do so risks undermining the integrity and competitiveness of U.S. digital asset markets, with significant ramifications for investors and market participants.