Crypto Asset Custody by Investment Advisers After the SEC’S Proposed Safeguarding Rule (Volume 56, Number 6—March 22, 2023)
Author: Scott Walker.; Neel Maitra.
Source: Volume 56, Number 06, March 15 2023 , pp.75-89(15)
Abstract:
The Custody Rule under the Advisers’ Act requires registered investment advisers to custody client funds and securities with a clearly defined set of “qualified custodians.” Few such qualified custodians exist for crypto assets, and crypto assets have several characteristics that distinguish them from traditional securities — these unique characteristics often pose distinct challenges for traditional custodians. We briefly examine the evolution of, and the principles underlying the Custody Rule under the Advisers Act, and the SEC’s proposed new Safeguarding Rule to suggest that instead of requiring investment advisers to custody crypto assets with qualified custodians, investment advisers should be permitted to self-custody crypto assets, provided their custody fulfills certain specified criteria.Keywords: FTX; Digital Assets; Custody Rule, Rule 206(4)-2; Qualified Custodian for Crypto Assets; Transitory Custody; RIA Self-Custody
Affiliations:
1: Andreessen Horowitz; 2: Wilson Sonsini Goodrich & Rosati.