SEC Proposes Self-Custody for Investment Advisers in Crypto Regulatory Framework

SEC Chairman Paul Atkins has asked his staff to develop a proposal that would allow investment advisers to self-custody crypto assets under certain conditions. The plan would also permit state trust companies to serve as custodians for advisers and regulated funds. This is part of the SEC's broader regulatory framework for crypto, which includes three main components: custody, Regulation Crypto Assets, and transfer-agent modernization.

The proposal addresses a long-running question over which institutions can hold digital assets for registered advisers and investment funds. Self-custody refers to an adviser directly maintaining custody rather than requiring every asset to be placed with an outside qualified custodian. The SEC chairman pointed out that for many assets, a qualified third-party custodian does not yet exist.

The Regulation Crypto Assets proposal, which was put forward in August, would establish a tailored offering regime for certain investment contracts involving crypto assets. It includes exemptions for offerings of up to $5 million over four years or as much as $75 million during each 12-month period, subject to disclosure and other requirements.

Atkins also urged Congress to advance the CLARITY Act, arguing that legislation could address questions surrounding when an investment contract involving a crypto asset ceases to exist. However, the Senate failed to advance the bill on September 15 after a cloture motion fell short of the required votes.