The future of digital asset custody is evolving rapidly, and regulatory clarity is more critical than ever. As the crypto ecosystem expands, so too does the need for secure, compliant, and accessible custody solutions that protect investors while enabling innovation. This discussion at the Crypto Task Force roundtable underscores a pivotal moment in shaping how crypto assets are safeguarded under U.S. securities law.
The Importance of Secure and Compliant Custody
Proper custody of client assets has long been a cornerstone of investor protection under federal securities regulations. Whether managing traditional equities or emerging digital assets, the principle remains unchanged: investors must be able to trust that their holdings are safe, segregated, and subject to oversight.
With an increasing number of Commission registrants engaging with crypto assets, the demand for reliable custodial frameworks has intensified. While progress has been made—such as the Office of the Chief Accountant’s recent withdrawal of Staff Accounting Bulletin No. 121—significant gaps remain in ensuring a diverse and competitive landscape of compliant custody options.
Expanding Access to Qualified Custodians
One key area requiring attention is whether registered investment advisers can rely on state-chartered limited purpose trust companies as qualified custodians for crypto assets under Rule 206(4)-2 of the Advisers Act—the so-called “Custody Rule.”
Currently, federally chartered banks have received clear guidance from the Office of the Comptroller of the Currency (OCC), which has affirmed that national banks may custody crypto assets in a fiduciary capacity under the National Bank Act. Several national banks have already been authorized to provide these services.
Given this precedent, it stands to reason that state-chartered institutions—such as those regulated by the New York State Department of Financial Services or the California Department of Financial Protection and Innovation—should also be recognized if they operate under comparable fiduciary standards. These entities often exercise powers similar to national banks and could offer competitive, innovative custody models if granted equal standing.
Aligning regulatory treatment between federal and state-level institutions would promote fair competition, increase market resilience, and expand access to secure custody solutions across jurisdictions.
Enhancing Regulatory Clarity and Competition
Beyond recognizing additional custodial entities, the Commission should consider modernizing outdated regulatory frameworks that may stifle innovation. The "special purpose broker-dealer" regime, established to accommodate digital asset securities, warrants review for potential modification or sunset provisions.
This regime was designed as an interim solution but risks becoming a bottleneck rather than a bridge. By updating or replacing it with clear, permanent rules, regulators can reduce uncertainty and encourage broader participation from institutional players.
Additionally, issuing interim guidance on how firms can simultaneously custody non-security crypto assets, crypto asset securities, and traditional securities would provide much-needed clarity. Such guidance should address compliance with capital requirements and customer protection rules—particularly Rule 15c3-3 under the Exchange Act—which governs the safeguarding of customer securities.
Ultimately, this guidance should be codified through formal rule amendments to ensure long-term stability and consistency in enforcement.
Clarifying Ambiguities Around "Funds" and Securities Classification
A major source of confusion stems from the previous administration’s position that “most crypto assets” are likely to be funds or securities. This broad characterization has led many investment advisers to treat all crypto holdings as subject to strict qualified custody requirements—even when such treatment may not be legally required or practically appropriate.
This over-application limits investment flexibility and prevents advisers from pursuing opportunities incompatible with rigid custodial arrangements. For example, certain decentralized finance (DeFi) protocols or staking mechanisms may not align with traditional custody models but still offer legitimate yield-generation strategies.
Moreover, the term “funds” is not explicitly defined within the Custody Rule. Without clarification, firms face legal ambiguity when determining whether specific crypto assets fall under this category. The Commission has an opportunity—and arguably a responsibility—to provide interpretive guidance on what constitutes a “fund” in the context of digital assets.
👉 Learn how evolving definitions are shaping the next generation of compliant crypto investing.
Supporting Innovation Without Compromising Investor Protection
Regulation should not be a barrier to innovation but a framework that enables responsible growth. As the crypto industry matures, regulators must strike a balance between safeguarding investors and allowing markets to develop organically.
Allowing state-chartered trust companies to serve as qualified custodians, revisiting outdated regimes like the special purpose broker-dealer framework, and clarifying ambiguous terms like “funds” are all steps toward creating a more inclusive, resilient, and transparent ecosystem.
These actions would not only enhance competition among custodians but also reduce systemic risk by encouraging diversification of service providers and promoting technological resilience.
Frequently Asked Questions
Q: What is the Custody Rule under the Advisers Act?
A: Rule 206(4)-2, commonly known as the Custody Rule, requires registered investment advisers to safeguard client assets by using qualified custodians—such as banks, broker-dealers, or certain trust companies—to hold client funds and securities.
Q: Can state-chartered banks custody crypto assets?
A: While no formal SEC guidance currently confirms this for all state-chartered institutions, some state regulators have authorized limited purpose trust companies to custody digital assets. Recognition by the SEC as qualified custodians would enhance legitimacy and adoption.
Q: Why does SAB 121 matter for crypto custody?
A: SAB 121 imposed stringent accounting requirements on companies offering crypto custody services, discouraging participation from traditional financial institutions. Its withdrawal removes a significant barrier to entry for banks and trust companies.
Q: Are all crypto assets considered securities?
A: No. While some crypto assets qualify as securities based on the Howey Test, many—including certain decentralized tokens—do not meet the legal definition. Commissioner Peirce and others have emphasized that blanket classification is inappropriate.
Q: What is a special purpose broker-dealer?
A: It’s a regulatory category created for firms that custody digital asset securities. These entities must comply with capital and customer protection rules but operate under modified standards due to the unique nature of digital assets.
Q: How can clearer rules benefit investors?
A: Clearer custody rules increase transparency, reduce fraud risk, expand service options, and foster institutional adoption—all of which contribute to stronger investor confidence and market integrity.
👉 See how compliant platforms are building trust in the future of digital finance.
Conclusion
As the digital asset market continues to grow, regulatory frameworks must evolve in tandem. Recognizing state-chartered fiduciaries as qualified custodians, refining outdated regimes, and clarifying ambiguous terminology are essential steps toward a more robust, competitive, and secure custody environment.
The Commission has both the opportunity and responsibility to lead this transformation—ensuring that investor protection keeps pace with innovation. With thoughtful action, we can build a financial system where crypto assets are integrated safely, fairly, and efficiently into the broader economy.
Thank you to the Crypto Task Force and panelists for your dedication to advancing this critical dialogue. The path forward requires collaboration, clarity, and courage—and today’s discussion marks another important step on that journey.