SEC Proposal Could Reshape Access to Digital Assets for RIAs and Asset Managers

According to CoinDesk, demand from registered investment advisors (RIAs) to provide digital assets to end-clients is greater than ever, with crypto wealth management platforms like Eaglebrook Advisors, Fidelity, and L1 Advisors making headlines. However, a little-watched SEC proposal could radically reshape how RIAs and asset managers access the digital asset class. In February 2023, the SEC proposed changes to the “Custody Rule,” which requires RIAs to safeguard client funds and securities with a qualified custodian. The recent proposal would broaden the current scope of the Custody Rule by requiring RIAs to safeguard all client assets, including digital assets, with a qualified custodian. Bankruptcy-remote custody solutions, like Anchorage Digital Bank, would still meet the SEC definition of a qualified custodian. The analysis is more nuanced with respect to state-chartered trusts, which may vary widely in compliance standards, bankruptcy protections, and key storage safety. The SEC proposal is a step in the right direction, marking a significant step toward bringing crypto further under the fold of traditional financial regulation in the US. The SEC is now considering next steps in the rulemaking process, after the public comment period closed late in October. RIAs in crypto need to take a serious look at regulated custody. Advisors are one of the most promising areas for institutional and mainstream adoption of crypto. Safekeeping client digital assets with a qualified custodian allows RIAs to future-proof their crypto offerings in a changing regulatory environment, while meeting growing client demand for safe, secure, and regulated access to the digital asset economy.