SEC Proposes Self-Custody Rules for Crypto Assets, Dividing Industry
The Securities and Exchange Commission (SEC) has proposed changes to crypto asset custody, sparking a mixed reaction from industry stakeholders. According to the proposed changes, registered investment advisors (RIAs) will be allowed to self-custody clients' crypto assets under certain conditions. The SEC argues that traditional custodians may not be willing or able to hold certain crypto assets, particularly novel ones.
Fidelity and Schwab, two major financial institutions, offer crypto custody options, but the SEC suggests that advisors be allowed to self-custody client assets if a permitted custodian is not available. To do so, advisors must have expertise in safeguarding each crypto asset, review cybersecurity systems annually, and address private key management and joint authorization of transactions.
The proposal drew praise from the Investment Adviser Association, which lauded the SEC for trying to make the custody rule more workable and effective. However, investor protection group Better Markets criticized the proposal, arguing that it endangers investors by allowing advisors to hold client crypto assets, which are typically held in custody at qualified custodians.
The proposed rules will be open to public comment for 60 days after publication in the Federal Register.