The U.S. Securities and Exchange Commission (SEC) recently hosted a public roundtable titled "Know Your Custodian: Key Considerations for Crypto Custody," bringing together regulators, legal practitioners, digital asset custodians, and crypto industry leaders.

The conference focused on three core issues: crypto asset custody risks, legal frameworks, and technical specificities, with SEC Chairman Paul Atkins and Commissioner Hester Peirce pointing out that crypto custodianship is fundamentally different from traditional asset custody, including the irreversible nature of transactions, the technical complexity of private key management, and the need for improved regulatory standards.

Participants debated the definition of "qualified custodian" under the Investment Advisers Act of 1940. The current statute predates the crypto era, leaving the legal status of crypto-native custodians unclear. Institutional investors called for regulators to recognize digital asset custodians with technical expertise and third-party audits.

The conference also revealed the systemic risks specific to crypto-trusts:
1. Continuous Cybersecurity Threats of Hot Wallets
2. Permanent loss of assets due to loss of private keys
3. Lack of regulation on the disposal of clients' assets in the event of a custodian's insolvency
4. Single-point failure risk from market concentration

Industry representatives, including Anchorage Digital, Coinbase Custody, and others, called on the SEC to develop a regulatory framework that is consistent with the nature of blockchain technology and warned that over-regulation could force the industry to migrate out of the country.The SEC said it would revise its custody rules in response to public comments, and in the future it may adjust the standards for qualified custodians, strengthen disclosure requirements, and enhance regulation of crypto-custody activities. The SEC has indicated that it will revise its custody rules in response to public comments.

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