SEC Self-Custody Rules for Crypto Assets Draws Mixed Reactions

The Securities and Exchange Commission has proposed changes to how crypto assets can be custodied in the wake of Congress’s failure last month to pass digital asset legislation.

Notably, the proposed changes the SEC unveiled on Thursday would allow RIAs to self-custody clients’ crypto assets under certain conditions.

The proposals garnered a range of reactions; one advisor advocacy group lauded the “positive framework” for crypto custody proposed by the rule, while an investor protection group said the proposal “subjects investors to the very high risk of loss the SEC exists to prevent.”

Under the rule, advisors must typically custody client assets with a regulated qualified custodian, which can range from the largest financial institutions (like Schwab and Fidelity) to banks.

However, the agency argued that typical custodians may not be willing or able to hold certain crypto assets; even custodians offering the service may not be able to support “the large and continuously growing number of crypto assets in the market,” including novel assets.

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To be fair, Fidelity and Schwab offer crypto custody options. Earlier this year, Schwab unveiled direct trading access for Bitcoin and Ethereum, with Schwab acting as the client custodian.