SEC Proposes Tough Crypto Custody Rules, Investors Get Protection

• The SEC has proposed amendments to the 2009 Custody Rule to expand its scope and implementation for all asset classes, including cryptocurrencies.
• These amendments would require custodians of crypto assets to satisfy additional transparency requirements, such as annual audits from public accountants.
• Crypto trading platforms which claim to custody investors’ crypto must be qualified custodians and properly segregate the assets from their own or other investors’ crypto.

SEC Proposes Tougher Rules for Crypto Custodians

The Securities and Exchange Commission (SEC) recently proposed amendments to the 2009 Custody Rule, which is designed to protect investors by requiring custodians of their assets — such as banks, broker-dealers, and trust companies — to take certain steps in order to safeguard those assets. The new proposal would extend the scope of this rule beyond traditional asset classes in order to include digital assets such as cryptocurrencies.

Why Is This Change Being Proposed?

Many cryptocurrency firms are claiming they can provide custody services but do not meet the standards set out by the SEC’s existing regulations. Chairman Gary Gensler noted that these platforms have been “commingling” customer funds with their own or other investors’, instead of properly segregating them as required by law. As a result, he argued that it was necessary for the SEC to step up its regulation of digital asset custodians so that customers can rest assured that their investments are safe and secure.

What Are The New Requirements?

Under this proposal, digital asset custodians would need to comply with a number of transparency requirements in order to be considered “qualified.” These include obtaining an annual audit from a public accountant, maintaining detailed records about each client’s holdings, providing clients with accurate statements on a regular basis, and more. In addition, all custodied assets — including cryptocurrencies — must be properly segregated in order for firms to qualify under these new rules.

What Does This Mean For Crypto Firms?

The approval of these changes will mean stricter enforcement against crypto firms who fail to adhere to these regulations. It could also result in higher costs for businesses offering digital asset custody services due to additional compliance measures they may need to implement in order stay compliant with SEC rules and regulations.


Overall, Gensler’s proposal seeks improve investor protection when it comes digital asset custody by introducing tougher rules and expanded oversight over firms offering such services. While there is still some uncertainty surrounding how this will affect existing businesses operating within this space, one thing is certain: customers can expect better security measures when it comes time for them entrust their money with digital asset custodians if this rule takes effect

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