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A two-member SEC is proposing crypto custody rules
The Securities and Exchange Commission on Thursday proposed rules for how investment advisers and regulated funds custody crypto assets, announced while the agency prepares to operate with two commissioners. Chairman Paul S. Atkins announced the proposal in a press release that says the framework would give advisers and funds “a compliant pathway where none existed before” for holding crypto.
Under the draft rules, advisers could hold client crypto themselves, but only when no permitted custodian is available for the asset. The adviser would have to reassess that determination every quarter and move the assets out as soon as a custodian becomes available, and at least two authorized individuals would need to approve any transfer. Regulated funds could hold crypto through their adviser under the same conditions, with the fund’s board overseeing the arrangement.
The proposal would also let state trust companies serve as crypto custodians, provided they are authorized by their state, have safeguards against loss and theft, keep audited financial statements and segregate client holdings from their own assets. A public comment period of 60 days opens once the proposal is published in the Federal Register, so nothing is final yet.
The governance backdrop is unusual. Commissioner Hester Peirce, who leads the agency’s crypto task force, reportedly departs on Friday to take a professorship in Virginia, leaving two commissioners. Earlier in the week the agency reportedly cut the quorum requirement from three commissioners to two, and if one of the remaining two is recused or conflicted, a single commissioner can act. Peirce said in her statement that advisers have been “gritting their teeth and holding on for dear life” waiting for workable custody rules.
Commissioner Mark Uyeda, the other remaining member, said in his own statement that the proposal recognizes adviser custody creates “an inherent conflict of interest,” and that fiduciary duties would continue to apply when advisers hold clients’ crypto.
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