SEC proposes rules that would change which crypto firms can custody customer assets

On Wednesday, the Securities and Exchange Commission voted 4-1 to propose changes to federal regulations that would expand custody rules to include crypto assets, and require that companies gain or maintain registration to hold customer assets. The proposed amendments to federal custody rules would “expand the scope” to include any client assets under the custody of an investment advisor. Current federal regulations only include funds or securities and require investment advisors, like Fidelity or Merrill Lynch, to hold those assets with a federal- or state-chartered bank, with a few highly specific exceptions. It would be the SEC’s most overt effort to rein in even regulated crypto exchanges with substantial institutional custody programs serving high-net-worth individuals and entities that custody investor assets, like hedge funds or retirement investment managers.

The move poses a fresh threat to crypto exchange custody programs, as other federal regulators actively discourage custodians like banks from holding customer crypto assets. The amendments also come as the SEC aggressively accelerates enforcement attempts. While the amendment doesn’t specify crypto companies, Gensler said in a separate statement that “though some crypto trading and lending platforms may claim to custody investors’ crypto, that does not mean they are qualified custodians.” The move poses a fresh threat to crypto exchange custody programs, as other federal regulators actively discourage custodians like banks from holding customer crypto assets. The amendments also come as the SEC aggressively accelerates enforcement attempts. While the amendment doesn’t specify crypto companies, Gensler said in a separate statement that “though some crypto trading and lending platforms may claim to custody investors’ crypto, that does not mean they are qualified custodians.”