The SEC’s crypto-custody proposal changes the questions for advisers

The SEC proposed a crypto-specific custody framework on 1 October for registered investment advisers and regulated funds, including registered investment companies and business development companies. It would allow self-custody in certain circumstances and permit state trust companies to act as custodians for relevant crypto assets. Other amendments concern audits and broker-dealer custody services. The proposal opens a 60-day comment period after Federal Register publication. Those are proposed permissions and requirements, not a final rule already available for unconditional use. Source.

In a separate statement, SEC chair Paul Atkins argued that older custody rules do not adequately accommodate digital assets. He highlighted the gap that can arise when a new asset exists before suitable custodial services are available. His statement presents the proposed framework as part of a broader regulatory programme. That explains the commission leadership’s rationale; it does not remove the need to read the detailed conditions, assess comments or wait for any final adoption and effective dates. Source.

Our interpretation is that a custody discussion becomes useful only when it identifies who controls assets and how that control is checked. A permission to use a category of provider is not an endorsement of every provider in it. An adviser considering a new arrangement needs to understand authorisation, segregation, transaction approval, reconciliation and recovery. Clients need a clear account of which entity is responsible when something goes wrong. The proposed rule may change the available legal routes, but it cannot substitute for that operating evidence. Until the process produces a final outcome, announcements should retain the word proposed rather than quietly turning possible future options into current permissions.

A custody comparison should also identify who can initiate a transfer and who can stop one. Those permissions may be distributed across people, software and service providers. Making the chain of authority visible helps a client evaluate an arrangement even before the final regulatory outcome, and keeps a proposed legal route separate from a provider’s operating controls.