What it is
The SEC's Custody Rule (Rule 206(4)-2 under the Investment Advisers Act of 1940) aims to protect client funds and securities from theft or misuse by investment advisers. It mandates advisers to hold client assets with a "qualified custodian" and to undergo annual surprise examinations by an independent public accountant, or to distribute account statements directly to clients from the qualified custodian.
In crypto, the application of the Custody Rule is a significant point of contention. The SEC has proposed amendments to expand its scope to include "digital assets" and to clarify what constitutes a "qualified custodian" for these assets, often requiring specific technical capabilities. This impacts how crypto investment firms operate and manage client funds, potentially increasing compliance costs.
Why it matters
This rule directly impacts how your investment adviser must protect your digital assets, ensuring they are held securely by regulated entities.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice