SEC Proposes New Custody Rules for Crypto Assets

The U.S. Securities and Exchange Commission released a proposed rule on Thursday aimed at establishing a regulatory framework for the custody of crypto assets. The proposal seeks to provide investment advisers and funds with a compliant pathway for holding digital assets, replacing existing rules that were designed for traditional assets.

SEC Chairman Paul Atkins stated that the proposal aims to protect advisory clients and regulated funds from risks like theft, loss, and misuse. The rule outlines requirements for record-keeping, federal disclosures, and auditing, while also clarifying which types of companies are eligible to serve as custodians.

Under the 760-page proposal, the SEC would allow for limited self-custody by investment advisers. This practice would only be permitted if an adviser cannot find a qualified custodian to hold the assets, such as in the case of a newly launched token. Firms utilizing this option would be required to possess specific expertise and undergo a quarterly review to determine if a qualified custodian has become available.

The proposed rule also permits the use of state-chartered trusts as custodians. The agency has opened the proposal for a 60-day public comment period.

This move follows other recent regulatory releases from the SEC, including the Innovation Exemption for tokenized securities and Regulation Crypto Asset. With the introduction of the custody proposal, the agency has addressed the major topics on the crypto agenda set by Chairman Atkins.

The announcement coincides with the upcoming departure of Commissioner Hester Peirce, who has led the agency's Crypto Task Force since its inception. Peirce is set to exit the SEC on Friday.