SEC Crypto Custody Proposal Eases Rules for Advisers
The SEC crypto custody proposal, published Thursday, would let investment advisers hold clients’ crypto assets themselves when no eligible crypto custodian is available — and permit state trust companies to serve as crypto custodians. For an industry that has spent years asking for clarity, the SEC crypto custody proposal is the regulator finally admitting the rules were written before any of this existed.
SEC Chair Paul Atkins acknowledged in a statement that the crypto asset market has grown into a multi-trillion-dollar asset class, but noted that “our rules and regulations have not kept pace.” The proposal aims to address a practical barrier to crypto investment: investment advisers often struggle to find qualified custodians for specific tokens, limiting the investments they can offer clients.
Under the proposal, advisers seeking to hold clients’ crypto assets themselves would need to establish that no permitted custodian is available for each asset and reassess that determination quarterly. If a custodian becomes available, the assets would need to be transferred as soon as reasonably practicable. Self-custody would also require safeguards around private keys, cybersecurity, and separation of each client’s holdings. At least two authorized individuals would have to approve any transfer of a self-custodied crypto asset.
The proposal would also allow regulated funds to maintain crypto assets in self-custody with their investment adviser, provided the adviser meets self-custody requirements and the fund’s board oversees the arrangement. Using a state trust company as a custodian would carry separate conditions, including authorization by the relevant state authority, reasonable procedures to safeguard assets, and the requirement to have audited financial statements and internal control reports.
SEC Commissioner Hester Peirce likened the uncertainty to a regulatory “roller coaster,” saying advisers have been “gritting their teeth and holding on for dear life” while awaiting workable custody rules. The SEC will accept public comments for 60 days after the proposal is published in the Federal Register.
Source: cointelegraph.com — SEC moves to clear custody hurdle for advisers offering crypto
