SEC Hosts Roundtable on Crypto Custody Regulations

The U.S. Securities and Exchange Commission (SEC) convened a public roundtable titled “Know Your Custodian: Key Considerations for Crypto Custody,” bringing together regulators, legal experts, digital asset custodians, and industry leaders. This event is significant as it marks the SEC's proactive effort to shape regulations around crypto custody, a critical aspect of the digital asset landscape.

Crypto custody involves the secure storage of digital assets for customers, which differs significantly from traditional asset custody. SEC Chair Paul Atkins and Commissioner Hester Peirce highlighted key differences, including the irrevocable nature of cryptocurrency transfers, the technical complexity of wallet management, and the evolving legal standards that currently lack a comprehensive framework for compliant crypto custodians. These factors, combined with market volatility, underscore the need for robust oversight in custody services.

A central topic of discussion was the definition of a “qualified custodian” under the Investment Advisers Act of 1940. Current rules, predating the advent of cryptocurrencies, have created uncertainty about whether crypto-native custodians meet legal standards. Institutional participants, including venture firms and fund managers, advocated for recognizing specialized digital asset custodians with demonstrated technical expertise and third-party audits. The absence of clear qualification standards poses legal risks for both clients and custodians, potentially compromising asset security and regulatory compliance.

The roundtable also addressed unique risks in digital asset custody, such as cybersecurity threats, loss of private keys, insolvency protection, and market concentration risks. Proposed measures included mandatory insurance policies, strict segregation of customer assets, more frequent third-party audits, and stricter cybersecurity requirements. These steps aim to enhance operational integrity and boost investor confidence in the safekeeping of digital assets.

Crypto custody companies, including representatives from Anchorage Digital, coinbase Custody, and BitGo, called for clearer technology-driven regulations. They emphasized the need for a modern legal framework tailored to blockchain, regulatory alignment across federal and state levels, and balanced rules that foster innovation. Custodians warned that excessive regulation could drive crypto services overseas, weakening U.S. market competitiveness and investor protections.

Chair Atkins indicated that the SEC will consider public input on its Custody Rule proposal and continue industry consultations through working groups and advisory committees. Potential next steps include revisions to qualified custodian standards for crypto, increased reporting and disclosure requirements, and more formal oversight of crypto custody activities within the SEC's jurisdiction. Atkins reaffirmed the agency’s commitment to investor protection and creating a safe, innovation-friendly financial ecosystem.

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