SEC proposes new crypto custody rules for investment firms
The U.S. Securities and Exchange Commission (SEC) has proposed new rules that would determine how investment advisers and regulated funds can hold clients’ crypto assets. The regulator aims to eliminate legal uncertainty stemming from the fact that existing custody rules were designed primarily for traditional financial assets.
According to the SEC, Chairman Paul Atkins said the new requirements should provide a clearer framework for working with crypto assets. He noted that existing custody rules do not account for the specific features of digital assets, effectively leaving investment firms without a clear compliance path.
The proposal clarifies which organizations would be allowed to act as crypto custodians and what requirements would apply to investment advisers and funds. The changes would cover recordkeeping, federal disclosures, and auditing requirements for digital asset operations. The SEC also wants to allow state-chartered trust companies to serve as custodians.
New tokens could qualify for an exception
One of the most notable changes concerns self-custody. Under certain conditions, an investment firm would be allowed to hold clients’ crypto assets itself. However, this option would only be available if no suitable qualified custodian is available.
The firm would also need to have the necessary expertise and infrastructure to store the assets securely. The ability to rely on self-custody would have to be reviewed every quarter to determine whether a qualified custodian had become available. Such cases are expected to be rare, but they could arise, for example, with newly launched tokens that major custodians do not yet support.
Atkins noted that the existing rules were created to protect client assets from loss, theft, misuse, and misappropriation. However, those rules are focused mainly on traditional assets and, in the SEC chairman’s view, no longer reflect the realities of today’s financial markets.
The SEC proposal will be open for public comment for 60 days after its publication in the Federal Register. After reviewing the feedback, the regulator may revise the proposal before adopting a final rule.
The new custody framework is another part of the SEC’s broader crypto agenda. The commission previously introduced Regulation Crypto Assets, which addresses fundraising through digital assets, as well as an Innovation Exemption intended to create a pathway for trading tokenized securities.
CLARITY Act setback leaves more work to regulators
The CLARITY Act was expected to address part of this problem by creating clearer rules for the digital asset market and defining the respective roles of the SEC and CFTC. However, the bill failed to clear a key procedural vote in the Senate in September, once again delaying the adoption of a comprehensive legislative framework.
Against this backdrop, the SEC has started addressing individual regulatory gaps through measures based on its existing authority. After the failed vote, Atkins said the agency would continue moving forward on its own. In recent weeks, the SEC has already introduced an exemption for tokenized securities, separate rules for raising capital through digital assets, and now a new framework for crypto custody.
The SEC has also proposed changes to fee structures for retail funds.
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