SEC Proposes Crypto Custody Framework with Self-Custody Option

The U.S. Securities and Exchange Commission (SEC) has proposed a framework for crypto asset custody that would allow registered investment advisers and regulated funds to self-custody certain digital assets under specific conditions.

According to the SEC, the proposal updates rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. It allows investment advisers or funds to hold their own crypto assets when specified requirements are met, such as determining that no permitted custodian can custody the assets.

SEC Chairman Paul S. Atkins stated that existing custody rules have not kept pace with digital asset developments, saying 'Our rules and regulations have not kept up.'

The proposal also includes safeguards for investment advisers or funds directly holding crypto assets, such as asset storage expertise, cybersecurity protections, annual reviews, internal reporting, account statements, and disclosures to clients.