The U.S. Securities and Exchange Commission has proposed new rules updating how investment advisers and regulated funds hold assets, with a specific focus on cryptocurrency. In a statement released Thursday, the agency outlined that advisers and funds acting through their advisers may hold client crypto themselves, but strictly under the condition that no permitted custodian is available. This proposal seeks to establish a clear regulatory framework for crypto custody, addressing what Chairman Paul S. Atkins described as rules crafted for a bygone era that created uncertainty.
The regulator indicated that records kept on a blockchain could count toward compliance, subject to conditions, and would allow the use of state trust companies as custodians for client and regulated fund crypto assets. The move proceeds despite lawmakers blocking the Clarity Act last month, which aimed to distinguish between digital assets classified as securities, commodities, or payment stablecoins. Atkins stated that since Bitcoin's advent in 2008, the market has grown into a multi-trillion-dollar asset class, and regulators intend to continue rulemaking regardless of legislative outcomes.
This regulatory development signifies a pragmatic shift from prohibition to conditional accommodation within the existing legal structure. By permitting self-custody only in the absence of a qualified third-party provider, the SEC attempts to balance investor protection with market accessibility. The inclusion of blockchain records for compliance purposes acknowledges the technical reality of digital assets, potentially reducing friction for firms already operating with distributed ledger technology. However, the narrow exception for self-custody suggests the agency remains cautious about direct exposure risks, preferring institutional intermediaries where possible.
The persistence of this rulemaking following the failure of the Clarity Act highlights the SEC’s intent to define market structure through administrative channels rather than waiting for comprehensive statutory guidance. This approach creates a bifurcated regulatory environment where operational standards are set by the commission while broader classification issues remain unresolved. Market participants must now navigate a landscape where custody protocols are clarified, yet the underlying legal status of many tokens remains ambiguous. The reliance on state trust companies introduces jurisdictional variability, requiring firms to carefully assess the adequacy of these entities against federal expectations.
