Oct. 20, 2023
the proposed SEC custody rules for digital assets lack clarity around responsibilities in some key areas: Custodian duties - Specific duties and responsibilities expected of registered custodians are vague, beyond high-level security and recordkeeping requirements. Sub-custodial oversight - Rules are ambiguous regarding custody providers' oversight duties for third-party sub-custodians holding assets. Private keys - Unclear whether custodians must hold private keys directly or can entrust entities like wallet providers. Insurance responsibilities - Who must obtain insurance coverage and how much is not defined. Loss reporting - When and how losses or theft of digital assets must be reported is uncertain. Asset verification - Frequency and methods for custodians verifying client assets are not detailed. Investor disclosures - Required disclosures to clients around cyber risks, insurance coverage, etc. are not stipulated. Transition period - Unclear what timeframe firms would have to comply with any finalized rules. Without more well-defined expectations and duties for custodians, oversight accountability becomes difficult. The SEC should work to build out a more detailed responsibility framework in its final rules. This will ensure proper security policies, procedures, and structures are in place industry-wide to protect investor assets. Clear standards will benefit compliant custodians and clients alike. Copy Retry Sent with Proton Mail secure email.