SEC proposes new custody paths for crypto advisers and funds
The SEC proposed new custody options for advisers and funds holding some crypto assets, including limited self-custody and state trust companies.
The U.S. Securities and Exchange Commission proposed new rules on Oct. 1 that would let registered investment advisers and regulated funds use more ways to hold some crypto assets. The change could allow funds to offer a wider range of crypto investment strategies, according to the SEC announcement.
When could advisers hold crypto themselves?
The proposal would let advisers hold client crypto through control of the private keys, but only if they meet safeguards. They would have to determine in writing, before taking custody and every quarter, that no permitted custodian is available for the asset. They would also need expertise and systems to protect it from loss, theft, misuse and misappropriation, with an annual review of those systems.
For a regulated fund to use this route through its adviser, the fund’s board would also have to oversee the arrangement. The plan calls for quarterly account statements to clients whose crypto the adviser holds, among other requirements, according to the SEC’s proposed rule.
Which assets and custodians would the proposal cover?
The proposal would add state trust companies as a custody option for eligible crypto assets. Advisers and funds would need a reasonable basis, after inquiry, to believe the company is authorized by its state to provide crypto custody and has written safeguards against theft, loss, misuse and misappropriation. The proposed requirements also include reviewing audited financial statements and internal control reports.
The rules would cover only crypto assets that are funds or securities for advisers, and securities or similar investments for regulated funds. They would not set custody requirements for every crypto asset.
When could the rules take effect?
They are proposals, not rules in force. The SEC says the public comment period will run for 60 days after the proposal is published in the Federal Register. The commission would consider comments before deciding whether to adopt a final rule.