The US Securities and Exchange Commission (SEC) has proposed new custody rules for crypto assets held by investment advisers and funds. The proposal aims to update regulations under the Investment Advisers Act and the Investment Company Act of 1940, which the regulator deems outdated for the current digital asset market.
Under the new framework, advisers may hold client assets themselves only if no qualified custodian is available. This condition must be documented and reviewed quarterly. Once a suitable custodian is identified, assets must be transferred promptly. The rules apply to assets classified as securities or cash equivalents, such as stablecoins, with broader requirements for regulated funds.
Self-custody by advisers requires strict security measures, including private key management and a dual-authorization process for transactions. Client assets must be segregated on individual addresses. Advisers must also undergo annual independent audits of internal controls and provide investors with quarterly statements detailing balances and transactions.
Alternatively, advisers may use state-licensed trust companies as custodians. This requires conducting due diligence before signing contracts and performing annual reviews thereafter. Custodians must maintain written security procedures to prevent theft or loss and ensure client assets remain separate from their own capital.
The SEC proposal also includes updates to general requirements for broker-dealers serving funds, as well as audit and disclosure standards. The document is currently open for public comment for 60 days following its publication in the Federal Register.
