On Friday, April 25, 2025, newly sworn in SEC Chairman Paul S. Atkins spoke for the first time in his new role at the SEC’s third roundtable in its series discussing crypto asset regulation called Know Your Custodian: Key Considerations for Crypto Custody.
In his opening statement, Chairman Atkins focused on the potential financial and technological opportunities that crypto assets and distributed ledger technologies can bring to U.S. investors. Chairman Atkins lauded blockchain technology, stating that he “expect[s] huge benefits from this market innovation for efficiency, cost reduction, transparency, and risk mitigation.” He denounced the SEC’s historical approach, asserting that “innovation has been stifled for the last several years due to market and regulatory uncertainty that unfortunately the SEC has fostered.” Finally, Chairman Atkins expressed eagerness to work with Congress and the Trump administration to establish “a rational, fit-for-purpose regulatory framework” for crypto assets, and solicited industry input on existing or potential regulatory regimes for the same.
Commissioner Hester Peirce expressed a similar willingness to facilitate the crypto asset market in the U.S. For example, she appeared to indicate in her opening remarks that self-custody, facilitated by distributed ledger technology, could live side by side with other options that involve the use of intermediaries. She further posed several questions that could inform the building of such a framework, including whether a principles-based approach is appropriate.
Together, Chairman Atkins’ and Commissioner Peirce’s opening remarks suggest a significant shift from the prior leadership’s approach to crypto assets’ entry into the U.S. securities markets and signal the potential for a considerable departure from the existing framework on custody.
Observations and actions
Observations:
- Much of the roundtable’s discussion focused on the differences between crypto custody and traditional asset custody; whether an entity that meets the definition of “qualified custodian” under the investment adviser custody rule could lawfully custody crypto assets; and whether the SEC should implement a crypto-specific custody regime. However, we believe that events may overtake the current environment more quickly than anyone anticipates. In particular, there is an increasing demand to tokenize traditional assets, with the tokens being stored on blockchains.
- Investment companies do not yet have clarity on how to maintain custody of digital assets.
- Investment company custody issues also currently extend to issues such as trading, staking or voting of digital assets.
Concrete steps:
- If your firm currently permits investors to transact in crypto transactions or would like to do so in the future, consider responding to some of the questions posed during the roundtable, such as whether you believe the Securities Investor Protection Act should be amended to better serve your customer base.
- Similarly, consider commenting on the ways in which you think your customers would be interested in accessing crypto assets, e.g., would they prefer to use a broker-dealer or investment adviser or self-custody their assets?
- Consider commenting on whether any amendments to the custody rules should account for tokenization developments with respect to traditional assets such that the rules are agnostic with respect to investments in traditional assets compared to tokenized assets.
- Consider commenting on whether any amendments to existing SEC or FINRA rules are required to accommodate the distribution of digitized fund shares through traditional intermediaries, such as broker-dealers.
- Consider commenting on amendments to investment company custody rules to facilitate proxy voting, trading and staking of digital assets, as well as the scope of institutions that are permitted to serve as investment company custodians.
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