SEC Proposes Crypto Custody Rules to Modernize Institutional Investing

The US Securities and Exchange Commission (SEC) has proposed new crypto custody rules that aim to modernize custody requirements for investment advisers and regulated funds. The proposal would permit self-custody under certain circumstances, allowing registered investment advisers, investment companies, and business development companies to hold cryptocurrencies for clients without the need for a qualified custodian.

The rule would also let state trust companies act as custodians, provided they meet specific requirements such as maintaining reasonable procedures to prevent loss, theft, or misappropriation of client assets. Regulated funds would gain the option to maintain crypto in self-custody through their adviser, as long as the fund's board oversees the arrangement.

The SEC aims to provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before. The proposal follows the stalling of the Clarity Act crypto market structure bill in the Senate and is part of a broader regulatory sequence aimed at digital asset rules.