SEC Proposes Easing Crypto Custody Rules for Investment Advisers

The U.S. Securities and Exchange Commission (SEC) has proposed easing crypto custody rules for investment advisers, aiming to address a custody gap that has limited some advisers' ability to offer digital asset exposure to clients.

Under the proposal, investment advisers would be permitted to self-custody crypto assets under strict conditions if no eligible custodian is available and subject to quarterly review. The plan also enables state trust companies to act as crypto custodians if authorized by state regulators and compliant with asset-protection, auditing, and segregation requirements.

SEC Chair Paul Atkins noted that the crypto market has expanded from a niche segment into a multi-trillion-dollar asset class while existing rules have not kept pace. The agency's proposal seeks to address a practical obstacle for advisers, who can struggle to find a qualified custodian for certain tokens and therefore limit what they can offer clients.

The proposal includes additional safeguards such as private key management, cybersecurity measures, and segregation of each client's holdings. Any transfer of a self-custodied crypto asset would require approval from at least two authorized individuals, and regulated funds could also maintain crypto in self-custody with their investment adviser if the adviser meets the requirements and the fund's board oversees the arrangement.