The point is to prevent corporations and hackers from stealing from people. Your crypto on exchanges is not safe. The government could already seize it if they want, but this allows them to also give the crypto back to its rightful owner after it has been seized. I don't think this will actually solve the problem and it's the wrong way to address it in my opinion but there's no good reason to misrepresent it.

Silver lining is this may motivate some exchange holders move to cold storage.