SEC Proposes New Rules for Crypto Asset Custody
The U.S. Securities and Exchange Commission has proposed new rules aimed at giving investment advisers and regulated funds clearer guidance on how they can hold and safeguard customer crypto assets.
The 760-page proposal would create a specific regulatory framework for digital asset custody, addressing an area that the agency says has been difficult to fit within rules originally designed for traditional financial assets.
SEC Chairman Paul Atkins said the proposal would give investment advisers and funds a compliant way to manage crypto assets while replacing uncertainty created by older custody requirements.
Under the proposed framework, the SEC would establish clearer requirements for companies acting as crypto custodians, along with rules covering recordkeeping, disclosures and auditing practices. The proposal would also allow certain state-chartered trust companies to serve as custodians.
One of the more notable provisions would permit investment advisers to hold client crypto assets themselves under limited circumstances. The SEC's use of the term "self-custody" refers specifically to an investment firm's ability to safeguard client assets, rather than the broader crypto industry meaning of holding assets directly.
An adviser would first need to establish that no qualified custodian is available to hold the particular assets. The firm would also need to demonstrate the required expertise to safeguard the crypto assets and would have to review the situation every quarter to determine whether an eligible custodian had become available.
An SEC official said the provision would likely apply only in unusual situations, such as when a newly issued token is not yet supported by established custodians.
Atkins said existing custody rules were created to protect advisory clients and regulated funds against risks including theft, loss, misuse and misappropriation. However, he argued that those rules were built around traditional assets and do not fully address the characteristics of digital assets.
The proposal will now enter a 60-day public comment period before the SEC can consider finalizing the rules.
The custody proposal is part of a broader effort by the SEC to establish clearer rules for the crypto industry. It comes as Commissioner Hester Peirce prepares to leave the agency after leading its Crypto Task Force since its creation. Her departure will leave the SEC with two commissioners.
Earlier this week, the agency also changed its quorum requirements, allowing two commissioners to constitute a quorum instead of the previous three. If one commissioner is unable to participate in a particular matter because of a conflict, the remaining commissioner can form a quorum.
The SEC has also advanced other crypto-related initiatives under Atkins, including its recently published Innovation Exemption for tokenized securities and a proposed Regulation Crypto Asset covering digital asset fundraising.
Together, the measures mark continued efforts by the agency to establish specific rules for crypto custody, tokenization and fundraising under the federal securities framework.