• U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has proposed amending federal custody rules to cover „all crypto assets.“
• The proposal would help ensure that customer assets are properly segregated, require advisers and qualified custodians to enter into written agreements with each other, and enhance requirements for foreign financial institutions.
• Gensler also warned investors not to rely on crypto trading and lending platforms as qualified custodians.

SEC Proposes Amending Federal Custody Rules

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has proposed amending federal custody rules to cover „all crypto assets.“ This expanded custody rule will help ensure customer assets are properly segregated, require advisers and qualified custodians to enter into written agreements with each other, and enhance requirements for foreign financial institutions.

Custodian Regulations Apply to Discretionary Trading

Under the proposal, the regulations would apply to discretionary trading — when an adviser would seek to buy or sell an investor’s assets on behalf of an investor. Current regulations already cover „a significant amount of crypto assets,“ Gensler pointed out, noting that most crypto assets „are likely to be funds or crypto asset securities covered by the current rule.“

Crypto Trading Platforms Not Qualified Custodians

Gensler warned investors not to rely on crypto trading and lending platforms as qualified custodians, emphasizing: “Though some crypto trading and lending platforms may claim to custody investors’ crypto, that does not mean they are qualified custodians.“ He further elaborated: “Based upon how crypto platforms generally operate, investment advisers cannot rely on them as qualified custodians.“

Proposal Requires Annual Evaluations & Account Statements

The proposal also sets out certain requirements for those offering crypto custody services such as requiring annual evaluations from public accountants; providing account statements; and providing records upon request.

Proposal Aims To Protect Investors‘ Assets

The SEC chairman emphasized that this proposal is aimed at protecting investors‘ assets: “Today’s proposal in covering all asset classes, would cover all crypto assets … [It] would help ensure that customer assets are properly segregated … [and] make explicit that the custody rule’s safeguards apply to discretionary trading.“