On October 1, the SEC proposed updates to the Investment Company Act custody rules and amendments to the Advisers Act custody rule to modernize how advisers and regulated funds safeguard crypto assets. The proposal highlights risks unique to digital assets, such as securing private keys, addressing cybersecurity vulnerabilities, and the irreversible on‑chain transactions, while clarifying when advisers and regulated funds can rely on permitted custodians, including certain State‑chartered trust companies. The proposal also outlines conditions under which advisers and regulated funds may use self‑custody in limited circumstances.
The amendments aim to improve oversight and transparency by revising recordkeeping and disclosure requirements, including updates to Form ADV and Form N‑CEN. The framework is intended to strengthen investor protection while allowing advisers and regulated funds to provide access to crypto assets when appropriate protections and custodial options exist.
If adopted, the amendments would:
- add targeted Form ADV and Form N‑CEN items for tokenized fund interests
- introduce defined internal‑control and multi‑authorization requirements for any self‑custody
- set qualification and oversight criteria for State‑chartered trust companies acting as custodians
- update accountant‑verification and internal‑control guidance for digital‑asset audits
For more information on the rule proposal, click here. The comment period will remain open for 60 days following publication in the Federal Register.
Sources:
Adviser and Regulated Fund Custody Rules; Crypto Custody Rules (sec.gov)
Proposed Rule (sec.gov)
