SEC proposes crypto custody framework for advisers and funds

The Securities and Exchange Commission proposed a framework on October 1 for how registered investment advisers and regulated funds may safeguard crypto assets, including conditional adviser custody and a potential role for state trust companies. The proposal is not final and would need to be adopted before its provisions could take effect. Under the plan, an adviser could hold eligible client crypto assets when a qualified custodian is unavailable, provided it meets proposed safeguards and continues to look for an alternative. If a qualified custodian later becomes available, the adviser would have to transfer the assets as soon as reasonably practicable, according to details in the proposal described by the agency. The proposal would also permit state trust companies to act as custodians, subject to conditions. These include due diligence and review of audited financial statements and control reports, as well as separating client assets from the provider’s own holdings. The framework covers registered investment advisers and regulated funds, including registered investment companies and business development companies.