SEC to vote on rule that would tighten crypto custody requirements

The Securities and Exchange Commission will vote on a rule that would raise requirements for how registered investment advisers custody assets —  including crypto. 

The agency will vote on proposing a rule that would expand current custody requirements to include any client assets that a registered investment adviser holds, and would also add more protections to those assets, such as surprise examinations. The five-member commission will vote on the proposed rulemaking on Wednesday morning.

If approved the custody rule would be subject to a standard public comment period, after which the SEC could amend it.   

Registered investment advisers are subject to a custody rule, which requires them to maintain those assets with a qualified custodian, such as a bank or broker-dealer. In prepared remarks provided to press, SEC Chair Gary Gensler said that rule has not been updated since 2009.  

“Today’s proposal would cover all asset classes that an adviser may custody, such as privately issued securities, real estate, and derivatives,” Gensler said. “Further, today’s proposal, in covering all asset classes, would cover all crypto assets — including those that currently are covered as funds and securities and those that are not funds or securities.” 

The proposed rule also would require advisers to segregate their investors’ assets. The current rule requires advisers and qualified custodians to segregate funds and securities, and the new rule would expand that to all assets, Gensler said.  

Gensler also warned that depending on how crypto platforms operate, investment advisers cannot rely on them as qualified custodians. An SEC official said some investment advisers do rely on crypto platforms as custodians.  

The rule would also require advisers to enter into a written agreement with qualified custodians to make sure clients get certain protections. 

“These protections are designed, among other things, to ensure client assets are properly segregated and held in accounts designed to protect the assets in the event of a qualified custodian bankruptcy or other insolvency,” the agency said in a fact sheet.   

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