SEC proposes crypto custody rules for advisers and funds

The Securities and Exchange Commission proposed a framework on Wednesday for how registered investment advisers and regulated funds can hold crypto assets. The proposal was issued under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Advisers must keep client assets with qualified custodians that meet safekeeping standards. Uncertainty over which crypto arrangements meet those standards has left many firms hesitant to offer digital-asset strategies. The proposal would permit self-custody of crypto assets under certain conditions. It would allow state trust companies to serve as custodians for client and fund crypto. It would update financial-statement audit rules for advisers and broker-dealer custodial rules for funds. The SEC says the changes aim to widen investor access to crypto strategies by removing barriers for advisers. SEC Chairman Paul Atkins said crypto had become a multi-trillion-dollar asset class since Bitcoin's advent in 2008, while the agency's custody rules had not kept pace. The custody proposal follows other SEC actions since the Clarity Act stalled in the Senate. The SEC rolled out an innovation exemption allowing tokenized stocks to trade on-chain and proposed a crypto-fundraising framework called Regulation Crypto Assets. SEC staff also clarified that token buybacks do not, by themselves, make a crypto asset a security. The proposal is not final. A 60-day public comment period will begin after publication in the Federal Register, and the SEC can revise the rules before a vote to adopt them.