Coinbase’s Custody Partner Electronic Transaction Clearing’s Credibility At Stake Over Past Performance

The Coinbase cryptocurrency exchange recently launched a new custody service for institutional investors but it seems that the service is off to a questionable start due to its partner, a firm called Electronic Transaction Clearing (ETC). Coinbase plans to attract a minimum of 100 institutional investors into its custody program before the end of the year.

The exchange has been criticized for selecting ETC as its custody partner because of its poor performance in the past, including being fined $80,000 by the Securities and Exchange Commission for failing to properly secure customer assets. According to reports, ETC illegally risked $25 million worth of securities belonging to clients in an attempt to fund its own operations. It reportedly used $8 million worth of deposits from a client in one of the instances to cover its margin requirements on borrowed funds. It also used $17 million in deposits as collateral to secure a loan. The SEC claims that the firm practiced such malpractices for a number of times in 2015.

ETC, which happens to be a securities firm as well as a broker faced the charges from the SEC in 2015 after an investigation that led to the company being fined $80,000. Although the amount of the fine was rather minuscule, the biggest blow on the company was losing credibility. It now seems that the ghosts of ETC’s past have come back to haunt it after Coinbase was criticized for selecting it as its custody partner given the tainted past.

Regulatory advantage Vs Checkered past

Coinbase is currently waiting for the regulatory green light to start operating as a broker-dealer. The exchange has been making some strategic acquisitions in order to speed up the process and achieve regulatory compliance. The crypto exchange has not sought formal approval from the SEC because ETC is already a broker-dealer that operates as an institutional custodian.

“ETC is an SEC-registered broker-dealer and FINRA member subject to regulated financial reporting and independent audits,” stated Coinbase in its announcement.

An individual familiar with the story claims that ETC’s previous management was responsible for the wrongdoings. However, it looks like those incidents may cause the investor community to lose confidence in Coinbase’s decision to team up with ETC.