The SEC writes a custody rule for crypto

The Securities and Exchange Commission has proposed rules and amendments setting out how registered investment advisers and regulated funds may hold crypto assets. The proposal covers registered investment companies and business development companies as well as advisers, and sits under the Investment Advisers Act of 1940 and the Investment Company Act of 1940.

Two provisions change what is practically possible. Crypto assets could be held in self-custody in certain circumstances, and state trust companies could serve as custodians for client and fund assets. Alongside those, the proposal updates requirements for financial statement audits of registered advisers and for broker-dealer custodial services used by regulated funds.

The Commission frames this as removing a barrier rather than adding a regime. Its argument is that existing custody rules inhibit an adviser's ability to give crypto-related advice at all, and that regulated funds consequently cannot offer clients the range of crypto strategies they ask for. Chairman Paul Atkins, in a separate statement, described the rules as crafted for a bygone era and the proposal as giving advisers and funds a compliant pathway where none existed.

For the asset management side of this market, custody has been the practical blocker rather than the legal status of any particular token. A qualified custodian requirement written for securities and cash does not map onto an asset where control is a private key, and the gap has kept mandates on the sidelines regardless of what a fund's managers thought of the asset class.

Nothing is in force. The public comment period runs for 60 days after the proposing release is published in the Federal Register, and the final shape of a rule this broad usually differs from the proposal in the details that matter most to operations.