A safekeeping rule refers to regulatory requirements that mandate how financial institutions must hold and protect client assets. In the digital asset context, this rule specifies the standards for custody, security, and segregation of client cryptocurrencies. It ensures that client funds are protected from misuse, loss, or insolvency of the custodian. Adherence to such rules is critical for investor protection and market integrity.
Context
The application of safekeeping rules to digital assets is a rapidly evolving area of regulatory focus, particularly as more traditional financial firms enter the crypto custody space. Key discussions involve adapting existing securities regulations to the unique technological characteristics of digital assets, such as private key management. Clearer and harmonized safekeeping standards are crucial for fostering trust and encouraging broader institutional participation in the digital asset market.
The SEC Staff's No-Action Letter permits RIAs and Regulated Funds to use State Trust Companies as Qualified Custodians for digital assets, structurally de-risking institutional adoption.
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