SEC proposes rules that would change which crypto firms can custody customer assets

The Securities and Exchange Commission voted 4-1 on Wednesday to propose sweeping changes to federal regulations that would expand custody rules to include assets like crypto and require companies to gain or maintain registration in order to hold those customer assets, according to CNBC.

The proposed amendments to federal custody rules would “expand the scope” to include any client assets under the custody of an investment advisor. Current federal regulations only include assets like funds or securities, and require investment advisors, like Fidelity or Merrill Lynch, to hold those assets with a federal- or state-chartered bank, with a few highly specific exceptions.

It would be the SEC’s most overt effort to rein in even regulated crypto exchanges that have substantial institutional custody programs serving high-net-worth individuals and entities which custody investor assets, like hedge funds or retirement investment managers.

The move poses a fresh threat to crypto exchange custody programs, as other federal regulators actively discourage custodians like banks from holding customer crypto assets. The amendments also come as the SEC aggressively accelerates enforcement attempts.