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Since the collapse of cryptocurrency exchange FTX, the SEC has been investigating advisors' attempts to adhere to agency regulations regarding custody of clients' digital assets, but the investigation has picked up steam, according to the sources. They agreed to speak on the condition of anonymity because the probes are private.

Advisors who are in charge of a client's digital assets often store them with a third party.

According to one of the individuals, SEC enforcement personnel are requesting information from investment advisors on the steps taken by their companies to determine custody for platforms like FTX. The extensive enforcement campaign, which has not previously been publicized, is an indication that the top U.S. markets regulator's investigation into the cryptocurrency business is now covering more established Wall Street companies.

A SEC representative refused to comment

Investment advisors are prohibited by law from having custody of client money or securities if they don't adhere to specified asset protection standards. Although the SEC does not maintain a particular list or provide licenses to companies to become such custodians, one of these requests that advisors keep such assets with a company judged to be a "qualified custodian."

According to lawyers who spoke to Reuters, the SEC's probe shows that the agency is focusing on a long-brewing problem for conventional corporations looking to engage in cryptocurrencies. The agency's accounting guidelines has limited the alternatives available to advisors looking for custodians by making it too capital-intensive for many lenders to retain digital assets on behalf of customers.

"Investment advisors clearly have a compliance problem with this. Anthony Tu-Sekine, head of Seward and Kissel's Blockchain & Cryptocurrency Group, stated: "If you have custody of client assets that are securities, then you need to custody them with one of these certified custodians.

"I believe the SEC can make the decision easily."

The SEC increased the size of its cryptocurrency team last year under Democratic leadership, making it a priority enforcement area. However, the regulator is now under increased pressure to crack down on cryptocurrency in the aftermath of a string of industry-wide bankruptcies and the publicizing of U.S.

accusations against Sam Bankman-Fried, the founder and former CEO of FTX, for allegedly committing fraud. He entered a not-guilty plea.

Former Alameda CEO Caroline Ellison and former FTX Chief Technology Officer Gary Wang, two of Bankman-colleagues, Fried's have both admitted to cheating investors and promised to collaborate.

The SEC has also been asking FTX stock investors for information on their research procedures before making their investments in the cryptocurrency exchange.

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