SEC Proposes New Rules for Cryptocurrency Custody and Self-Custody

The US Securities and Exchange Commission (SEC) has introduced new rules for the custody of cryptocurrencies by registered investment advisers and regulated funds. The proposal, which was published on October 1st, allows for limited forms of self-custody, but this should not be confused with individual investors directly controlling their private keys.

The SEC's Commissioner Hester Peirce clarified that 'self-custody' in this context refers to the adviser acting as a custodian for the client's assets, not the investor holding their own keys. The proposal updates rules for registered investment advisers and regulated funds under the Investment Advisers Act of 1940 and the Investment Company Act of 1940.

The new rules permit registered investment advisers to directly custody cryptocurrencies for clients in limited circumstances where no qualified custodian is available. Additionally, the SEC recognizes state-authorized trust companies as qualified custodians for cryptocurrency assets under certain conditions.

The proposal is a result of years-long efforts by the SEC to address issues with existing custody rules, which were designed for traditional assets and not crypto. The SEC aims to provide clearer guidance on how investment advisers and funds can manage cryptocurrencies while maintaining their fiduciary duties.