SEC proposes crypto custody rules allowing limited self-custody by advisers and funds

The U.S. Securities and Exchange Commission proposed new rules on Thursday to update how investment advisers and regulated funds hold assets, with a focus on crypto. The SEC said advisers and funds acting through their advisers could hold client crypto themselves only if no permitted custodian is available. The SEC said blockchain records could count toward compliance, subject to conditions. The SEC also said state trust companies could serve as custodians for client and regulated fund crypto assets, subject to conditions. SEC Chairman Paul S. Atkins said crypto had grown into a multi-trillion-dollar asset class since Bitcoin's advent in 2008, while custody rules had not kept pace. Atkins said the proposal would give advisers and funds a compliant pathway for crypto custody where none existed before. Lawmakers blocked the Clarity Act in a procedural vote last month after it failed to secure enough votes to advance. The proposed legislation would distinguish digital assets that are securities, commodities or payment stablecoins. Before the vote, regulators said they would begin regulating crypto regardless of whether the legislation passed. Before the vote, the SEC sent the White House a proposal aimed at clarifying crypto custody rules for investment advisers and companies. Atkins said he would continue working to make the U.S. the "crypto capital of the world" regardless of whether the legislation passed.