SEC Proposes Conditional Self-Custody Framework for Crypto Custody

The US Securities and Exchange Commission (SEC) has proposed a framework for crypto custody, allowing registered investment advisers and regulated funds to hold client assets in two ways.

The first option is conditional self-custody by the adviser, which would only be possible if no authorized custodian is available. The adviser must demonstrate their expertise, protect private keys with joint authorization from at least two persons for each transaction, and obtain a report from an independent auditor on their internal controls within six months.

The second option is custody by a state trust company, which would require the adviser or fund to verify that the company is authorized by their state banking authority to hold cryptos, review its audited accounts and internal control report, and ensure client assets are segregated from its own funds.