SEC Drafts Updated Regulations for Digital Asset Storage

Bitcoin Magazine

SEC Proposes New Rules On Crypto Custody

The U.S. Securities and Exchange Commission has introduced newly proposed regulations to modernize how regulated funds and investment advisers manage asset holdings, with a major emphasis on cryptocurrencies.

During a Thursday statement, the Wall Street financial regulator indicated it would permit advisers—and the funds operating through them—to personally hold client digital assets, provided that no authorized custodian is accessible.

Regulators are continuing to advance rulemaking for the digital asset sector despite lawmakers having blocked the Clarity Act last month.

That anticipated legislative bill—which serves as a framework to differentiate between digital assets categorized as payment stablecoins, commodities, or securities—failed to secure the necessary votes to move forward.

“Since the advent of Bitcoin in 2008, the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure. Unfortunately, our rules and regulations have not kept pace,” SEC Chairman Paul S. Atkins stated.

“To that end, today’s proposal would provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before — and replacing the grey of uncertainty created by custody rules crafted for a bygone era.”

Within its proposal, the regulatory agency noted that blockchain-maintained records can contribute toward compliance, provided specific conditions are met.

The agency further stated that state trust companies will be permitted to act as custodians for regulated funds and client cryptocurrency holdings, subject to conditional requirements.

Last month, lawmakers stalled the Clarity Act via a procedural vote. Regulators had previously stated ahead of that vote that they would begin regulating the cryptocurrency industry regardless of whether the landmark bill passed.

Prior to the vote, the SEC submitted a proposal to the White House designed to “clarify the framework for the custody of crypto assets” for corporations and investment advisers.

The pro-crypto Atkins affirmed that he remains committed to establishing the United States as the “crypto capital of the world,” independent of whether the landmark legislation is successfully enacted.

FAQ

What did the SEC propose regarding crypto custody?

The SEC proposed new rules that would allow investment advisers and funds to hold client crypto themselves if no permitted custodian is available.

Can blockchain records count toward compliance?

Yes, the proposed rules state that records kept on a blockchain could count toward compliance, subject to conditions.

Are state trust companies allowed to act as custodians?

Yes, the agency would allow the use of state trust companies as custodians for client and regulated fund crypto assets, subject to conditions.

What happened to the Clarity Act?

Lawmakers blocked the Clarity Act in a procedural vote last month after it failed to get the votes needed to advance.

What did SEC Chairman Paul S. Atkins say about the proposal?

Atkins stated that the proposal provides a clear regulatory framework for crypto asset custody, giving investment advisers and funds a compliant pathway where none existed before.