SEC Proposes New Custody Rules for Crypto Assets at Investment Firms

The Securities and Exchange Commission has put forward new rules and amendments designed to establish a tailored regulatory framework for how investment advisers and regulated funds handle the custody of cryptocurrency assets, according to an agency release. The proposal targets registered investment advisers as well as registered investment companies and business development companies that hold or manage digital assets on behalf of clients.

The move represents a significant step by the SEC to bring crypto asset custody practices in line with the standards already applied to traditional securities. Custody rules are a cornerstone of investor protection, ensuring that client assets are properly segregated, safeguarded, and accounted for — requirements that have historically been difficult to apply to digital assets given the unique technical characteristics of blockchain-based holdings.

Read more SEC Releases Updated Exam Handbook for Registered Firms →

By crafting rules specifically tailored to the crypto space, the SEC appears to be acknowledging that existing custody standards, written before digital assets existed, do not translate cleanly to the infrastructure used by cryptocurrency markets. The proposal signals the agency's intent to extend its investor protection mandate into an asset class that has grown substantially but remained subject to regulatory ambiguity.

The proposal will be subject to a public comment period, during which industry participants, legal experts, and investor advocates will have the opportunity to weigh in before any final rules are adopted. The outcome could have broad implications for how asset managers structure their digital asset offerings and which qualified custodians they are permitted to use.

Continue reading at Press Releases.