Clear custody rules are a fundamental part of asset management—and an essential safeguard for investors.

The SEC’s latest proposal to modernise its custody rules is therefore a welcome step towards more workable rules for investment advisers holding crypto assets on behalf of clients.

AIMA, the world’s largest alternative investment trade body, has been calling for greater clarity in this area for some time, including in our comment letter to the SEC’s Crypto Task Force. It is encouraging to see several of those issues reflected in the proposed rule.

The proposal would open new routes for safeguarded self-custody and custody through state trust companies, while keeping the private fund annual audit route. These changes could help tackle some of the practical barriers investment advisers face.

There is still plenty to work through, from shared-control arrangements and restrictions on self-custody to how the rules interact with staking, DeFi and trading, not to mention the broader custody requirements for other types of investments covered by the custody rules under the Investment Advisers Act and the Investment Company Act.

We will now work with AIMA members to test whether the proposals strike the right balance: protecting investors while giving managers the flexibility they need to put their investment strategies into practice.

James Delaney, Managing Director, Asset Management Regulation, AIMA said:

“The Securities and Exchange Commission’s latest custody proposal for crypto assets marks meaningful progress. AIMA has been calling for greater clarity and more workable custody rules for some time, and it is encouraging to see several of our recommendations reflected in the proposal.

“Opening new routes for safeguarded self-custody and custody through state trust companies could help remove some of the practical barriers investment advisers face, while retaining important safeguards for investors.

“There is still plenty to work through, and we will be testing the detail to help ensure the final framework strikes the right balance between protecting investors and giving investment advisers the flexibility they need to put their investment strategies into practice.”