According to a letter sent to the SEC Chair and the President of FINRA, the House Financial Services Committee raised concerns over the approval of Prometheum Ember Capital LLC, questioning the process and highlighting national security issues.
"The timing and circumstances surrounding the approval of Prometheum as the first SPBD raise serious questions. The approval comes as the Committee is considering addressing gaps in the regulation of digital assets," said Patrick McHenry, Chairman, Subcommittee on Oversight and Investigations.
On August 15, the House Financial Services Committee made public letters to both Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), and Robert W. Cook, President and CEO of the Financial Industry Regulatory Authority (FINRA), seeking transparency over the approval process of Prometheum Ember Capital LLC, a subsidiary of Prometheum, Inc.
In the detailed letters dated August 9, 2023, the Committee expressed serious concerns surrounding the timing and circumstances of Prometheum's approval as the first special purpose broker-dealer (SPBD) under a regime introduced by the SEC in December 2020. The regime is designed to allow for the custody and transaction of digital asset securities, given approval by FINRA.
Though the regime has been in place for over two years, FINRA had not approved any SPBDs until Prometheum's approval on May 17, 2023. The Committee's concerns center around the timing of the approval, coming just seven days after a joint hearing on digital assets and shortly before legislation was released on digital asset market structure.
The letter also questioned Prometheum's readiness to serve customers, citing the company's lack of operating history and lack of clarity on which digital asset securities it would support.
Perhaps most alarmingly, the Committee raised issues over national security and data privacy concerns connected to Prometheum's reported ties with Shanghai Wanxiang Blockchain Inc., a Chinese entity believed to have connections to the Chinese Communist Party (CCP). Although an agreement between the companies was terminated, the Committee expressed serious concerns over the involvement of the Chinese entity in the early stages of Prometheum's development.
According to the letters, Prometheum's founder and co-CEO, Aaron Kaplan, and other executives have publicly expressed confidence in their firm's regulatory compliance. However, the House Financial Services Committee has requested all related documents and communications concerning Prometheum's application to become a special-purpose broker-dealer by August 22, 2023.
The SEC, FINRA, and Prometheum have not yet publicly responded to the letter.