SEC Proposes Path for Crypto Custody by Investment Advisers

The U.S. Securities and Exchange Commission (SEC) has proposed a crypto asset custody framework for registered investment advisers and regulated funds. The proposal updates rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, allowing investment advisers or funds to self-custody certain crypto assets under specified requirements.

According to the SEC, the proposal aims to provide a compliance path for investment firms wishing to store digital assets for clients. The draft also proposes state-chartered trust companies as permitted custodians.

SEC Chairman Paul S. Atkins stated that existing custody rules have not kept pace with digital asset developments. 'Our rules and regulations have not kept up,' Atkins said.

Commissioner Hester M. Peirce clarified that self-custody in the proposal refers to advisers acting as custodians for client assets, not investors holding their own assets without intermediaries. The proposal still requires safeguards when advisers or funds directly hold crypto assets.

The proposed safeguards include asset storage expertise, cybersecurity protections, annual reviews, internal reporting, account statements, and disclosures to clients.