SEC Proposes New Crypto Custody Rules to Expand Investor Choice

On October 1, the US Securities and Exchange Commission (SEC) issued a comprehensive regulatory proposal modernizing crypto custody. Its aim is to remove regulatory hurdles while providing transparent and compliant ways for registered investment advisers (RIAs) and regulated funds to provide crypto advisory and custodial services.

Details of the SEC proposal on crypto custodianship 

Notably, the proposed rules and amendments come under the Investment Advisers Act of 1940, and the Investment Company Act of 1940.

The first rule discusses permitted self-custody, where advisers are allowed, under limited circumstances, to self-custody cryptocurrencies. Those eligible are firms that determine the unavailability of a qualified third-party custodian on a quarterly basis. Advisers also have to meet strict operational safeguards, including cybersecurity protocols and asset segregation.

Next is permitting state-chartered trust companies to provide crypto custody services, but under certain conditions. This would expand the service beyond traditional banks, which sometimes lag in the technology and regulatory freedom necessary to safeguard digital assets.

Third is a rule to exempt authorized discretionary trading from strict custody requirements, as long as client accounts remain protected.