Harbor Subsidiary is Awarded Broker-Dealer License

A subsidiary of securities platform Harbor has been granted a broker-dealer license by FINRA.

According to online publication Coindesk, awarding of the broker dealer license to Harbor Square Investments may clear the way for other broker-dealers who deal exclusively in cryptoassets to gain approval from the agency. A broker-dealer license allows trading platforms to perform several activities, such as selling and purchasing securities for customers, market-making, and providing investment advice.

Coinbase, perhaps the most well-known cryptocurrency exchange in North America, has also applied for a similar license. While launching its custody solution recently, the Winklevoss brothers-backed cryptocurrency exchange Gemini also indicated that it would file for a broker-dealer license soon.

Crypto and Broker-Dealer Licenses

The awarding of broker-dealer licenses is already subject to a stringent set of requirements. Within the context of cryptoassets, those requirements become even more complicated. This is partly due to the novel nature of such assets and the lack of clarity about their regulatory status. Josh Stein, CEO of Harbor, told Coindesk that regulators took a “long time to get a handle on the space…and its implications.”

Among the key concepts that stumped them were private key access, record-keeping, and asset custodianship. For the most part, cryptocurrency exchanges that list such assets own the private keys, that are used to access them. But it can be difficult to prove that those keys are not available with anyone else.

Custody was another problem for regulators. Unlike gold, which can be kept in physical vaults, custodianship of cryptocurrencies is largely an evolving industry, whose processes are still being defined. Coinbase recently acquired a custodian while Gemini has launched its own institutional-grade custody service.  

Stein told Coindesk that his firm focused on “people, processes, and tech.” “We concentrated on institutional-grade people, institutional-grade processes, and institutional-grade tech from the beginning,” he said. They also prepared 500 pages of documentation explaining their business to regulators, who went through it with a “fine-tooth comb.” “It’s like writing the War and Peace of compliance,” said Stein.

Harbor has ambitious plans for the future. The New York-based platform plans to become a “one-stop shop” for issue of digital security tokens. “We’re going to provide the technology platform to manage the fundraising, the technology to manage investors, the technology to tokenize and enable liquidity,” Stein told Coindesk. The startup recently tokenized shares from real estate funds onto Ethereum’s blockchain.