SEC Unveils Crypto Custody Framework as Peirce Prepares to Depart Agency

Key Highlights

• On Thursday, the SEC unveiled a comprehensive framework establishing custody standards for crypto assets held by investment advisers and funds.
• Investment advisers would gain permission to self-custody digital assets for clients under specific circumstances, particularly when qualified custodians are unavailable.
• The framework includes provisions allowing state-chartered trust companies to function as qualified custodians.
• This regulatory action arrives just one day before Commissioner Hester Peirce’s departure from the agency following her tenure leading the Crypto Task Force.
• A 60-day window for public feedback begins immediately, following the Senate’s rejection of the Clarity Act.

The U.S. Securities and Exchange Commission unveiled a proposed rule Thursday that establishes guidelines for investment advisers and regulated funds managing custody of digital assets.

Chairman Paul Atkins of the SEC explained that existing custody regulations were designed for a previous financial landscape. He noted these rules addressed only conventional assets, creating a void in regulatory guidance for digital asset management.

The comprehensive proposal spans 760 pages and introduces detailed requirements for custodial qualifications and record-keeping protocols for firms handling client crypto assets.

Key Provisions of the Proposed Framework

The framework would authorize investment advisers to employ self-custody arrangements under narrowly defined conditions. These situations primarily arise when qualified custodians refuse or cannot support particular digital assets.

According to an SEC representative, such scenarios are anticipated to occur infrequently. The official cited newly issued tokens awaiting custodian integration as a potential use case.

Advisers choosing self-custody arrangements must demonstrate appropriate technical capabilities for secure asset management. Additionally, quarterly assessments would be mandatory to determine if qualified custodian services have become accessible.

The proposal extends custodian eligibility to state-chartered trust institutions. This provision broadens the selection of custodial services available to advisers and investment funds beyond federally regulated options.

Commissioner Peirce provided clarification regarding the “self-custody” terminology. She emphasized it describes advisers maintaining client assets rather than individual cryptocurrency holders managing their own holdings.

“While true self-custody isn’t suitable for everyone, many in the crypto community value the ability to maintain direct control of their assets,” Peirce noted in her official statement.

Timeline and Future Developments

The regulatory proposal emerges one day prior to Peirce’s final day serving at the commission. She has overseen the SEC’s Crypto Task Force throughout its existence and will transition to academia in Virginia.

Her exit reduces the SEC to two sitting commissioners. The commission recently adjusted its quorum requirements earlier this week, lowering the threshold from three commissioners to two.

Public commentary on the custody framework will be accepted for 60 days. Following this period, the SEC will evaluate feedback before determining whether to adopt the final rule.

This announcement builds upon the SEC’s recent cryptocurrency regulatory initiatives. The commission previously introduced its Innovation Exemption addressing securities tokenization and put forward Regulation Crypto Asset governing digital fundraising activities.

Following the Senate’s defeat of the Clarity Act, both the SEC and the Commodity Futures Trading Commission have advanced their cryptocurrency regulatory agendas. The CFTC has submitted its own digital asset rulemaking proposals to the White House for review.

Chairman Atkins indicated additional regulatory proposals are forthcoming. He emphasized the commission’s commitment to establishing the United States as a leading jurisdiction for cryptocurrency innovation.

This custody framework represents the final component of the comprehensive crypto regulatory roadmap that Atkins outlined at the beginning of the year.