SEC Crypto Rules Favor Big Firms Over Small Advisers

The US Securities and Exchange Commission (SEC) has proposed new rules for crypto custody fallback, which could broaden investment choices but make them harder for smaller advisers to offer.

The proposal would allow advisers to hold covered client crypto assets when an eligible custodian is unavailable, subject to certain safeguards. However, the expense of safeguarding these assets and arranging independent oversight may lead smaller firms to decline to offer this service.

The SEC's economic analysis estimates that the annual cost for an adviser using this option would be $433,833 per year, which includes an internal control report but excludes technology costs. This could make it more difficult for smaller advisers to provide crypto custody services.

SEC Commissioner Hester Peirce distinguished between self-custody and investors holding their own assets, noting that an intermediary would hold clients' key materials in the proposed fallback arrangement.