Newsletter

• The U.S. Securities and Exchange Commission (SEC) has proposed a customized framework to outline how registered investment advisors and regulated funds should manage crypto assets, in an attempt to clarify which arrangements meet the criteria for a "qualified custodian." For a long time, this standard has made many institutions cautious about offering digital asset business strategies.
• The scheme will allow for self-hosting under specific conditions, permit state-chartered trust companies to act as trustees, and update the audit rules as well as the relevant regulations for brokerage dealers to provide custody services for funds.

The U.S. Securities and Exchange Commission is trying to address one of the most thorny issues in the institutional crypto market: how professional fund managers should hold these assets.

On Wednesday, the institution proposed a customized framework to regulate how registered investment advisors and regulated funds manage crypto assets, with the aim of replacing years of regulatory ambiguity with a clear compliance path.

Investment advisors are required to entrust client assets to 'qualified custodians' that meet strict custody standards. However, for a long time, it has not been clear which crypto asset arrangements met these criteria, which has deterred many companies from offering digital asset strategies.

This proposal is based on the '1940 Investment Advisors Act' and the '1940 Investment Companies Act', and aims to alleviate this bottleneck through various means. Under specific conditions, the proposal allows for the self-management of crypto assets, permits state-licensed trust companies to provide custody services for clients' and funds' crypto assets, and updates the rules related to the financial statement audits of investment advisors as well as the custody services of fund brokers and traders.

SEC aims to expand the channels for investors to access crypto strategies by removing the barriers that have long kept investment advisors on the sidelines.

Chairman Paul Atkins stated in a statement, "Since the birth of Bitcoin in 2008, the crypto asset market has grown from a niche and novel phenomenon into an asset class worth trillions of dollars, with investors actively seeking exposure to it." He also mentioned that the current rules SEC "have not kept up with the pace," and that this proposal will replace the "uncertain gray areas created by custody rules established for outdated times."

The institution previously also introduced an "innovation exemption" that allowed tokenized stocks to be traded on the blockchain; proposed a set of crypto financing frameworks known as the "Cryptocurrency Regulations"; and staff clarified that token repurchases themselves do not automatically classify a certain cryptocurrency as a security.

Together, these measures reflect a broader shift: the crypto industry is no longer waiting for congressional action but is taking a more proactive approach to engaging with regulatory authorities.

This proposal has not yet been finalized. Once it is published in the Federal Register, a 60-day public comment period will be initiated, after which the agency may make modifications to the rules before a formal vote for adoption.