SEC Proposes Crypto Custody Rule to Clarify Digital Asset Regulation

The U.S. Securities and Exchange Commission (SEC) has proposed a new rule for the custody of crypto assets, aiming to provide clarity for investment firms and their clients. SEC Chairman Paul Atkins stated that the existing custody rules were designed for traditional assets and do not account for the complexities of digital assets.

The proposed rule would allow investment advisers to hold their clients' funds in limited circumstances, known as self-custody. However, this would only be possible if a qualified custodian is not available, which is likely to be an unusual circumstance. The SEC would require investment firms to have certain expertise and to review their ability to hold clients' assets every quarter.

The proposal also permits the use of state-chartered trusts as custodians. The SEC has opened a 60-day public comment period for the proposal, which would add a new layer of regulation to the crypto industry.

The SEC's move is part of its broader agenda to regulate digital assets, including the recent publication of the Innovation Exemption and Regulation Crypto Asset. The agency has reduced the number of commissioners required to form a quorum, from three to two, which could impact the decision-making process in the future.