SEC proposes conditional crypto custody rules for advisers and funds

The SEC has proposed new rules for how investment advisers and regulated funds may hold certain crypto assets, offering more custody options that could make it easier to provide crypto investment strategies. The proposal is not final. The SEC’s announcement says the rules would allow self-custody in some cases and let state trust companies act as custodians.

Issued on Oct. 1, the proposal covers registered investment advisers and regulated funds, including registered investment companies and business development companies. It would amend rules under the Investment Advisers Act and the Investment Company Act. The SEC says the current rules can leave firms without a clear way to custody some crypto assets.

When could advisers hold crypto themselves?

The proposal would let advisers act as custodians for client crypto in limited circumstances, including when no permitted custodian is available, according to The Block’s report on the proposal. That use of “self-custody” means the adviser holds assets for clients. It does not mean clients control the assets themselves.

This option matters when custody services for a particular crypto asset are not available. Under current rules, advisers generally have to use permitted custodians for client funds and securities. The proposal would create another route in those cases, subject to conditions.

What other custody options would the SEC allow?

The SEC also proposed allowing state trust companies to custody crypto for advisers and regulated funds. A custodian is a firm that holds assets on behalf of a client or fund. The proposal would set conditions for using these companies, alongside its conditions for adviser self-custody.

The rules would apply only to crypto assets that fall within the relevant federal securities laws. For advisers, that means crypto that is a client fund or security; for regulated funds, it means crypto securities or similar investments. The proposal also updates related recordkeeping, reporting and disclosure requirements.

Investors and firms can comment on the proposal before the SEC decides whether to adopt it. The comment period will run for 60 days after the proposal appears in the Federal Register. Until then, the proposed rules do not change the custody requirements in force.

Sources

• SEC’s announcement — sec.gov
• The Block’s report on the proposal — theblock.co