SEC Proposes Limited Crypto Self-Custody for Investment Advisers

The US Securities and Exchange Commission (SEC) has proposed new rules that would allow investment advisers to hold client assets directly, under limited conditions. The proposal, announced on October 1, also opens a path for state trust companies to safeguard cryptocurrency for clients and regulated funds.

The SEC's framework would amend requirements under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. It would cover registered investment advisers, registered investment companies, and business development companies, addressing how firms store cryptocurrency, maintain records, and meet reporting requirements.

SEC Chairman Paul Atkins said existing rules had failed to keep pace with digital assets, describing the proposal as giving advisers and funds a compliant pathway where none existed before.

Under the proposal, an adviser could hold certain client cryptocurrency assets directly when an appropriate outside custodian is unavailable. Before taking custody, the adviser would need to determine whether a permitted provider can safeguard the particular asset and repeat that assessment at least every quarter.

The adviser would also need to have the expertise to protect the specific cryptocurrency asset, which could be the case for newly launched tokens that custodians do not yet support.