SEC Proposes New Crypto Custody Rules

The U.S. Securities and Exchange Commission (SEC) proposed new rules on October 1, aimed at clarifying how investment advisers and regulated funds can manage crypto assets on behalf of clients. This initiative seems to reflect an acknowledgment of the increasing importance of digital assets.

This proposal is designed to establish a specific custody framework for registered investment advisers, investment companies, and business development companies. It also suggests allowing crypto assets to be held through state trust companies and, in certain situations, through self-custody arrangements.

If these rules are enacted, investment advisers and regulated funds may find it more straightforward to manage crypto assets for clients, moving away from older regulations that were conceptualized long before digital assets came into play.

SEC Chair Paul Atkins pointed out that the crypto market has evolved significantly since Bitcoin’s inception in 2009, morphing from a “niche curiosity” into a “multi-trillion-dollar asset class.” He emphasized that the current regulations have not kept pace with this rapid growth.

“Today’s proposal would provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before,” Atkins stated.

The proposal will be open for public commentary for 60 days before the SEC decides on adopting a final rule. This step underscores an ongoing effort to adapt regulations in line with contemporary market realities.

Continuing Developments in SEC’s Crypto Regulations

The custody proposal is just the latest in a series of regulatory measures from the SEC regarding cryptocurrencies. Recently, on August 18, the agency proposed a Regulation Crypto Assets framework aimed at certain crypto investment contracts, which would introduce new exemptions for some token offerings.

Then, on September 17, the SEC introduced an Innovation Exemption to allow qualified venues to trade tokenized U.S. stocks under specific conditions while longer-term regulations are being developed. This move came shortly after the Senate didn’t progress on the CLARITY Act, which would have provided a comprehensive framework for the crypto market. Atkins mentioned that the SEC’s work would continue regardless of Congressional delays.

“With or without that legislation, this Administration will deliver for American investors and technological innovators,” Atkins declared at a summit. “Promises were made, and they will be kept.”