SEC Crypto Custody Rules Favor Big Firms Over Small Advisers

The US Securities and Exchange Commission (SEC) has proposed new rules for crypto custody that could broaden investment choices, but may also have a disproportionate impact on smaller financial advisers.

The proposal would allow advisers to hold client crypto assets when an eligible custodian is unavailable, subject to certain safeguards. However, the estimated annual cost of $433,833 per adviser using this option may deter smaller firms from offering this service.

The SEC's economic analysis suggests that larger advisers with sufficient resources may be able to meet the safeguards, while smaller ones may not have the necessary expertise or infrastructure to do so.

SEC Commissioner Hester Peirce noted that self-custody is distinct from clients holding their own assets, and that an intermediary would hold clients' key materials, potentially including a non-controlling portion. Clients would still depend on that intermediary's safeguards.