SEC Proposes New Crypto Custody Rules Amid Clarity Act Gridlock

The SEC has proposed new crypto custody rules for registered investment advisers and regulated funds. The rules would allow self-custody in certain circumstances and permit state trust companies to act as custodians. Under the proposal, advisers would have to determine before taking custody, and then every quarter, that no permitted custodian is available. Self-custody would come with safeguards such as cybersecurity protections, annual reviews, internal reporting, account statements, and disclosures to clients. The public comment period for the proposal will run for 60 days from Federal Register publication.

The proposal aims to fill a gap in the market, as few traditional providers offer robust custody services across a substantial range of crypto assets. This has left advisers and regulated funds with limited options for holding an asset class that clients increasingly want to access. The SEC's move shows how regulators can continue filling individual gaps while Congress debates the larger framework.

The Clarity Act, which would set a broader framework for crypto, remains blocked in Congress. The bill would split oversight between the SEC and CFTC, establish registration requirements, and strengthen anti-money laundering protections. The SEC's proposal does not directly settle which tokens exchanges may list, but its immediate effect would be on regulated entities that hold or advise on crypto assets.