Sec Unveils Crypto Custody Plan As Advisers Gain Potential Path To Self-Custody

Bitcoin traded near $86,800 on October 2 as the SEC proposed new rules for crypto custody. The proposal would let advisers use self-custody when qualifying custodians cannot hold specific crypto assets.

The SEC issued the proposal on October 1 under the Investment Advisers Act and Investment Company Act. The agency also proposed allowing state-chartered trust companies to provide qualifying crypto custody services.

The plan remains a proposal, so it does not immediately change existing custody requirements. However, it opens a formal 60-day public comment period after Federal Register publication.

Bitcoin Price And The SEC Custody Proposal

Bitcoin has traded above $86,000 as the cryptocurrency market enters October with stronger momentum. Barron’s reported Bitcoin at $86,885 on October 2, up 2.7% during the session.

Against that market backdrop, the SEC has focused on a specific operational problem affecting regulated crypto activity. Some advisers have faced limited custody options for certain digital assets under existing rules.

The proposed framework would give advisers another route when eligible custody services remain unavailable. However, the SEC would limit that route to defined circumstances and require additional controls.

Under the proposal, an adviser would first need to establish that no permitted custodian can hold the relevant crypto asset. The adviser would then reassess that finding every quarter.

If an eligible custodian later becomes available, the adviser would need to move the asset within a reasonable period. This requirement would keep self-custody as a conditional option rather than a permanent alternative.

Self-Custody Would Carry New Controls

The SEC proposal would require advisers to protect private keys and maintain cybersecurity measures. It would also require separate handling of each client’s assets to prevent improper mixing.

At least two authorized people would need to approve transfers involving self-custodied crypto. The framework would therefore combine direct custody with internal controls and oversight.

Regulated funds could also use adviser self-custody under the proposed framework. However, the adviser would need to meet the custody requirements while the fund’s board oversees the arrangement.

The SEC would also recognize state-chartered trust companies as potential crypto custodians. These firms would need state authorization and procedures designed to protect assets from loss, theft, or misuse. They would also need audited financial statements and internal control reporting under the proposed framework. Furthermore, they would have to separate client assets from their own holdings.

SEC Proposal Adds To Wider Crypto Rulemaking

The custody proposal forms part of a broader SEC effort to update crypto rules through existing federal securities laws. The agency has also pursued measures covering tokenized securities and other digital asset activities.

The SEC says the new custody framework would modernize rules for current industry practices. It also proposes changes involving audits, records, disclosures, and broker-dealer custody arrangements.

The proposal does not create a broad framework for every cryptocurrency. The SEC specifically addresses crypto securities and similar investments within the federal securities laws.

That distinction limits what the proposal would change across the wider digital asset market. It also means the custody rules would not automatically determine whether individual tokens qualify as securities.

The proposal now moves into public review, giving market participants 60 days after Federal Register publication. The SEC can then consider submitted comments before deciding whether to adopt final rules.

For advisers and funds, the main issue will remain practical implementation if the SEC finalizes the framework. The outcome will depend on the final custody conditions and the availability of qualified custodians.

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