U.S. Securities & Exchange Commission Commissioner Crenshaw cautions against weakening custody standards for crypto assets

In remarks at the U.S. Securities & Exchange Commission’s third crypto roundtable on custody, Commissioner Caroline A. Crenshaw argued that any crypto-specific custody approach should preserve the investor-protection strength of existing SEC custody rules, warning against a dual regime that lowers standards for safeguarding client assets. Crenshaw highlighted risks tied to holding assets on a blockchain, including protocol and smart contract failures, hacking, and challenges in demonstrating exclusive control over digital assets, and pressed for clarity on investor disclosures and protections if a crypto custodian becomes insolvent, including whether Securities Investor Protection Corporation-style protections would apply. For investment advisers and investment companies, she emphasized that the Custody Rule is built around use of a “qualified custodian” and questioned ideas such as adviser self-custody for crypto or expanding which entities qualify, raising issues around licensing barriers, variation among state-chartered trust companies, the need for additional policies and procedures, and independent verification of crypto assets. In the broker-dealer context, she focused on large crypto platforms that hold customer assets in omnibus wallets and track many transactions off-chain, questioning whether this market structure justifies different custody requirements and whether omnibus wallets should be permitted given operational and external risks compared with segregated wallets.