The United States Securities and Exchange Commission introduced a sweeping proposal on Thursday to set clear custody standards for cryptocurrency assets managed by investment advisers and regulated funds. The move aims to address longstanding gaps in how firms protect client crypto assets, which existing regulations have struggled to cover adequately.
New framework for crypto asset custody
SEC Chairman Paul Atkins stated that current custody regulations were designed for traditional financial assets and have fallen behind as digital assets gain prominence. Atkins pointed out the need for updated protocols to reflect the evolving realities of the cryptocurrency market.
The 760-page proposal lays out comprehensive requirements for custodians, including strict record-keeping and security obligations for both digital and traditional client holdings. Under the new plan, advisers would be permitted to maintain self-custody over client crypto assets in limited scenarios, particularly when no qualified custodian is available for a specific digital asset.
An SEC official clarified that such circumstances should be rare and gave the example of investment advisers seeking exposure to tokens that have only recently been listed, where established custodians may not yet offer support.
Advisers choosing this self-custody route will need to show expertise in secure asset management, and they must undergo quarterly reviews to determine if qualified custodian services have become accessible since the last assessment.
Expansion of qualified custodians
The proposal also broadens the pool of eligible custodians, now allowing state-chartered trust companies to serve in this role. This adjustment gives investment firms more flexibility beyond federally regulated institutions.
Commissioner Hester Peirce provided further insight, explaining that in the context of this regulation, self-custody refers to advisers—not individual investors—maintaining control over client crypto assets.
True self-custody is not the right choice for everyone, but many crypto owners prize being able to custody their own assets, Peirce stated, distinguishing between institutional and personal custody arrangements.
Regulatory process and SEC developments
The SEC opened a 60-day public comment period on the proposal, inviting industry and investor feedback. This regulatory milestone arrives one day before Commissioner Peirce’s planned departure, following her term as head of the agency’s Crypto Task Force.
Peirce’s exit leaves the commission with two active members. In response, the SEC recently reduced its quorum requirement from three to two commissioners to maintain decision-making capabilities.
The new crypto custody proposal closely follows several other regulatory initiatives, including the SEC’s recently introduced Innovation Exemption for securities tokenization and Regulation Crypto Asset framework addressing digital fundraising.
In the broader regulatory landscape, the Commodity Futures Trading Commission has submitted its own crypto rulemaking agenda to the White House, and both agencies seem aligned on advancing oversight after the Senate rejected the Clarity Act earlier this week.
Atkins suggested that further regulatory proposals are in the pipeline, emphasizing the SEC’s commitment to making the United States a leader in cryptocurrency innovation.
With this custody framework, the SEC completes the core objectives of this year’s cryptocurrency regulatory roadmap outlined by Atkins.
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