SEC proposes adviser self-custody of crypto assets with narrow conditions

The US Securities and Exchange Commission (SEC) has put forward new rules governing how investment advisers may hold crypto assets in custody, with the headline provision permitting advisers to retain assets directly rather than routing them through a qualified custodian, but only under tightly defined circumstances. In the general case, qualified custodians remain mandatory, and the proposal expands that category to include state-chartered trust companies, though solely for crypto assets.

The scope of the rules is specific: they apply primarily to funds, including stablecoins and tokenised deposits, as well as to securities, and may also reach newly issued digitally native tokens subject to investment contracts. Bitcoin, Ether, and other cryptocurrencies not classified as securities fall outside the rules’ reach for most private funds such as hedge funds and venture capital funds, though they are captured when held inside a registered investment company or business development company.

The timing is notable given that the Depository Trust Company (DTC) is preparing to launch tokenised securities, which would qualify as crypto assets under the proposed framework and would therefore sit within these custodial provisions. The only justification the SEC accepts for bypassing a qualified custodian is a genuine absence of one for a particular asset: the unavailability of staking services, or the cost of custody, does not meet the threshold. Commissioner Peirce has coined the term ‘shelf custody’ to distinguish this adviser-held arrangement from individual self-hosted wallets, signalling that the commission views it as a narrow operational accommodation rather than a broad liberalisation.