SEC Introduces Revised Crypto Custody Regulations for Investment Advisors and Funds

The SEC’s 760‑page proposal permits advisers to practice self‑custody of client assets, a term the agency defines as an asset‑management practice rather than the usage common among crypto firms. The rule would require that an adviser demonstrate no qualified custodian is available, a scenario expected to be rare after implementation, and that the adviser possess the necessary expertise to manage crypto assets directly. Quarterly reviews would assess whether a suitable custodian has become available.

The official noted that the self‑custody scenario — arising from a request by the industry to the Crypto Task Force — would generally be uncommon, but could apply to a newly launched token for which custodians have not yet begun support.

Atkins explained that current custody rules were intended to safeguard advisory client assets and regulated fund holdings from loss, theft, misuse, and misappropriation. However, they address only the custody of traditional assets — an increasingly untenable situation in the 21st century.

The proposed rule, subject to a 60‑day public comment period, would also allow state‑chartered trusts to serve as custodians.

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