SEC Commissioners urgently overhaul of crypto custody regulations

Crypto Custody is poised for groundbreaking transformation as SEC leaders drive smarter rules, stronger protections and innovation-driven frameworks to redefine digital asset security for the future.

SEC Roundtable urgently calls for custody reform of crypto

US Securities and Exchange Commission (SEC) chairpersons Mark T. Weda, Caroline A. Crenshaw and Hester M. Perth attended Chairman Paul Atkins and participated in the Crypto Task Force’s third roundtable in Washington, DC on April 25th, focusing on key issues of Crypto Asset Custodody.

Commissioner Uyeda highlighted the need for clarity in regulations and urged investment advisors registered with the SEC to use state-characterized limited trust companies as qualified custodians. Uyeda warns that it leaves regulatory uncertainty behind, saying, “Due to the previous management position that “most crypto assets” are likely to be funds or securities, many advisers should put all client crypto assets on shoes to qualifying custody, thereby giving certain investment opportunities that are incompatible with these detention arrangements.” “He emphasized:

I agree with Commissioner Perth that many crypto assets are not securities.

“However, the term “funds” is not defined in the custody rules and the committee may need to clarify whether crypto assets constitute “funds” for the purposes of the regulations,” he pointed out. Uyeda also advocated reforms to a special purpose broker-dealer administration, highlighting the need for competitive management solutions compliant with federal law.

Commissioner Crenshaw compared property custody with trusting airlines in personal baggage, focusing on his remarks on the risk of deviating from existing strong protections. She considered participants as follows: “If the SEC creates double regulations, how will it ensure that the crypto regime is as robust as the current regime? What is the committee able to increase the risks to investors and the broader financial system that may stem from different crypto custody rules?”

Crenshaw warned that blockchain-specific risks, such as smart contract failure, threat hacking, and difficulty establishing exclusive management of assets, must be factored into regulatory adjustments. She stressed that SEC custody rules are important for market trust and stability, warning that shift standards could put investors at unnecessary risk, especially in the event of custodian bankruptcy.

Commissioner Perth approached the Roundtable in search of smarter, more flexible regulations that reflect the reality of blockchain technology. She gave her opinion:

Our regulatory approach requires us to recognize the differences in crypto assets. While some crypto assets have qualified custodians, for others, independent-supporting may be a more secure option.

Perth criticized the current “lava floor” approach to crypto regulations. This approach requires participants to navigate unclear and dangerous regulatory gaps. She argued that innovation should not be suffocated by a stiff framework that defends rules that promote both protecting investors and technological growth. Procrypt’s commissioners also emphasize that the decentralized structure of blockchain offers investors new opportunities for asset management and security, suggesting that traditional frameworks should evolve rather than resist these changes.