The US Securities and Exchange Commission has proposed new crypto custody rules that would let investment advisers hold client assets directly under limited conditions. The October 1 proposal also opens a path for state trust companies to safeguard crypto for clients and regulated funds.
The SEC announced a framework covering registered investment advisers, registered investment companies and business development companies. It would amend requirements under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The changes address how firms store crypto, maintain records and meet reporting requirements.
SEC Chairman Paul Atkins said existing rules had failed to keep pace with digital assets. He described the proposal as giving advisers and funds a compliant pathway where none existed before.
The agency also proposes changes to financial statement audits and broker-dealer custody services for regulated funds. These provisions cover established custody practices alongside the proposed crypto rules.
Under the proposal, an adviser could hold certain client crypto assets directly when an appropriate outside custodian is unavailable. Before taking custody, the adviser would need to determine whether a permitted provider can safeguard the particular asset. It would then repeat that assessment at least every quarter.
The adviser would also need the expertise to protect the specific crypto asset. An SEC official said the arrangement could apply to a newly launched token that custodians do not yet support. The official described such cases as likely to be unusual once the framework takes effect.
Here, self-custody refers to an investment adviser holding assets for clients. The proposed permission would depend on the availability of outside custody services and the adviser’s ability to meet the required safeguards. Firms would therefore need to review their eligibility as custody options change.
The proposed safeguards address private-key management and require joint authorization by at least two people. Private keys control access to crypto assets. Advisers holding client crypto directly would also need to keep each client’s holdings in blockchain addresses containing only that client’s assets.
In addition, advisers would need to assess the risks of holding crypto themselves and prepare a report examining controls over their custody services. The report would cover the safeguards used to protect client holdings. These requirements form part of the conditions attached to direct custody.
Clients would receive account statements at least quarterly. Those statements would identify the blockchain addresses holding their crypto and the networks on which those addresses operate. Together, the account details and reporting requirements would document where advisers keep client assets.
The framework would also permit state trust companies to serve as custodians for client and regulated fund crypto assets. This provision accompanies the conditional self-custody option and the agency’s proposed changes to existing audit and custody requirements.
The proposal remains subject to public feedback before the SEC decides whether to adopt final rules. The comment period will run for 60 days after publication in the Federal Register. That deadline starts with Federal Register publication, rather than the October 1 announcement, giving respondents time to examine the proposed requirements.
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