SEC Proposes Major Overhaul of Crypto Custody Rules to Boost Adoption

The Securities and Exchange Commission (SEC) has taken a significant step towards modernizing crypto custody rules for investment advisers and funds. On August 25, the SEC sent a reform project to the White House, which aims to update the Investment Advisers Act and the Investment Company Act of 1940. The document proposes to 'modernize the rules governing the custody of clients' and funds' assets, including crypto assets in each case.'

The current rules were designed for traditional financial securities and have hindered institutional actors from participating in the crypto market due to compliance risks. By removing ambiguity and outdated provisions, the SEC aims to protect investors while allowing for greater participation in the crypto space.

Meanwhile, the Hyperliquid Policy Center has also been advocating for a harmonized framework for perpetual contracts. In a letter addressed to the SEC and CFTC, HPC argues that perpetual contracts should be classified according to their economic structure rather than their underlying asset. This would enable platforms to compete on execution quality and liquidity without fear of regulatory disputes.

The SEC's reform project is seen as a significant step towards creating a more favorable environment for crypto adoption in the US. However, it remains to be seen whether the text will survive its passage through the OIRA without significant changes.