As digital assets gain ground in global finance, US regulators face a pivotal inflection point: how to retrofit traditional regulatory structures to accommodate blockchain-based innovation. In January 2025, the SEC launched a formal initiative to address this challenge, establishing a dedicated Crypto Task Force to chart a clearer path forward.

Composed of 14 cross-agency professionals, including notable industry veterans Michael Selig and Landon Zinda, the task force is tasked with closing regulatory loopholes, refining enforcement strategies, and proposing updated disclosure and custody rules for crypto assets.

The group’s work is unfolding in parallel with a growing stream of public input: more than 100 written comments have already been submitted, from abstract philosophical manifestos to highly detailed blueprint for systemic reform. The SEC has supplemented this effort with a series of focused roundtables, designed to elicit practical perspectives from market participants.

One such event, held on April 25, zoomed in on a pressing issue: crypto custody. Across two sessions, one on broker-dealer custodianship and another on the obligations of investment advisers and funds, the discussion laid bare the legal and operational ambiguities that continue to haunt the sector.

The message was clear: without rethinking custody, the broader architecture of digital asset regulation may remain structurally unsound.

Statement from regulators

Commissioner Mark Uyeda opened the roundtable with a call for pragmatic reform of custody frameworks, arguing that regulators must not stifle innovation through outdated rule interpretations.

“Crypto is not any different in principle,” he emphasized, stressing that firms engaging with digital assets deserve access to lawful, flexible custodial arrangements.

With Staff Accounting Bulletin No. 121 now withdrawn, Uyeda believes the SEC has an opening to modernize custody practices by formally recognizing the role of state-chartered trust companies, like those licensed by New York and California banking authorities, as qualified custodians.

Commissioner Caroline Crenshaw struck a more cautious tone, framing the debate around the concept of trust. Comparing crypto custody to checking luggage on a flight, she asked pointedly: “If your life savings were in that suitcase, wouldn’t you ask more questions?”

For Crenshaw, custody rules are not technicalities but essential guarantees. She warned against creating a dual-track regulatory regime, one for traditional assets, another for crypto, unless the new track can match the existing “gold standard” of investor protection.

“Firms are leaping from one poorly illuminated regulatory space to the next.”

Hester Peirce, SEC

Commissioner Hester Peirce delivered perhaps the most evocative metaphor of the day. Comparing the SEC’s current approach to “a game of lava,” she described a crypto landscape riddled with regulatory uncertainty and legal landmines, where firms are “leaping from one poorly illuminated regulatory space to the next.”

The net result, she argued, is a system that discourages compliant actors while leaving consumers exposed to risk from the unregulated fringe.

Chairman Paul Atkins delivered brief but pointed remarks, reiterating the urgent need for a rational crypto regulatory regime. Welcoming Commissioner Peirce’s leadership on the issue, Atkins described crypto innovation as a force for financial modernization that is being “stifled by regulatory ambiguity.”

He promised to work closely with Congress and the administration to develop “clear rules of the road,” noting that today’s custody challenges are just one piece of a larger puzzle.

Broker-dealer custody

The SEC’s afternoon panel on broker-dealer custody, moderated by Zach Zweihorn (Davis Polk), brought together representatives from Kraken, Anchorage Digital Bank, Fireblocks, BitGo, Exodus, Copper, Etana Custody, and Fidelity Digital Assets.

The discussion centered on how digital asset custody should be structured for SEC-registered entities. While consensus emerged on the need for regulatory modernization, panelists diverged on how far the SEC should go in redefining core custody standards and who should qualify as a custodial entity.

Several speakers called for abandoning the current fixation on wallet architecture or exclusive key control. One panelist argued that “effective control” should replace legacy notions of physical possession, emphasizing that modern custody depends more on system design and institutional governance than on private key location.

Others noted that digital assets are safest when left “at rest,” and that requiring frequent movement, for example, to segregate assets in overly specific ways, increases operational risk. Instead of prescriptive technology mandates, these panelists favored a principles-based approach centered on auditability, transparency, and outcome-based accountability.

Another group, particularly those from prudentially regulated institutions, argued that federal charters remain the strongest foundation for digital asset custody. They emphasized the role of capital buffers, compliance obligations, and operational resilience frameworks that banks are already required to maintain.

Frustration centered on regulatory ambiguity rather than regulatory burden.

One participant warned against conflating “self-custody” as practiced by broker-dealers with consumer-facing self-hosted wallets, stressing that holding client funds triggers fiduciary duties and thus demands institutional-grade controls, not informal crypto-native assumptions.

A third group, representing firms that operate state-chartered trust companies, argued that existing bank-like entities should be recognized as qualified custodians under federal law. Their frustration centered on regulatory ambiguity rather than regulatory burden. Rather than seeking exemptions or safe harbors, they asked for confirmation that their current compliance structures meet SEC standards.

Still others urged the Commission to avoid hardwiring specific business models into law and instead focus on crafting a flexible, risk-aligned framework that would support both innovation and investor protection.

A notable flashpoint involved omnibus wallets and transparency. While some panelists insisted that omnibus custody can be made secure through cryptographic proofs and Merkle-tree-based attestation, others cautioned that such practices may limit clients’ ability to verify their individual holdings.

A shared concern was the mismatch between regulators’ focus on bankruptcy remoteness and the more immediate threat of operational exploits. The challenge, as one speaker noted, is to draft rules that prioritize the real-world risks of custody, without freezing innovation in a fast-moving ecosystem.

Future of custody

The second session of the SEC’s roundtable, titled Investment Adviser and Investment Company Custody, featured a heavyweight lineup of panelists drawn from top law firms, academia, fintech, and investment advisory sectors.

Moderated by Zach Zweihorn of Davis Polk, the panel included Susan Gault-Brown (Allen Overy Shearman Sterling), Justin Browder (Simpson Thacher), Mike Didiuk (Schulte Roth), Larry Florio (1kx), Adam Levitin (Georgetown Law), Charles Mooney (Penn Carey Law), Neel Maitra (Dechert), and Ryan Louvar (WisdomTree).

A major point of agreement was the fundamental inadequacy of existing custodial rules when applied to digital assets. Panelists emphasized that forcing advisers to comply with a qualified custodian regime designed for legacy securities, while also upholding fiduciary duties to clients, creates an untenable conflict.

For example, advisers may have to choose between locking tokens in cold storage, satisfying technical custody requirements, or executing trades and staking operations in real-time, as fiduciary duty might demand. All sides acknowledged that the rulebook, last meaningfully updated in 2003, is poorly suited to the speed, structure, and decentralization of crypto assets.

Yet the panel splintered when it came to the question of whether and how self-custody should be permitted. Technology-focused participants argued that registered investment advisers (RIAs) who understand blockchain infrastructure may in fact be safer custodians of digital assets than many banks or trust companies.

Others insisted that the custodial regime must continue to prioritize third-party controls and independent verification, whether via surprise audits, internal controls, or emerging blockchain-native transparency features.

Some panelists advocated expanding the definition of qualified custodian to include state-chartered trust companies.

A consensus emerged around the idea that custody rules should shift from rigid definitions of who may custody to a more functional evaluation of how custody is performed, but disagreement persisted over the scope and structure of such a transition.

The final divide came down to solvency and systemic risk. Some panelists advocated expanding the definition of qualified custodian to include state-chartered trust companies or specialized crypto custodians, provided they meet minimum prudential and operational safeguards.

Others expressed discomfort with entrusting customer assets to entities licensed under looser regimes, like money transmitters, which lack the resolution frameworks of banks or broker-dealers.

While there was cautious optimism around multiparty computation, on-chain auditability, and even programmable custody via smart contracts, the panel ultimately exposed a deeper philosophical rift: whether crypto custody should bend to fit the traditional financial system, or whether the system itself must be reimagined to meet the cryptographic future.

From fragmentation to framing

In contrast to the first two SEC roundtables, which were defined by their clarity of purpose and tentative alignment on reform principles, the third session veered into legal and technical ambiguity, highlighting how unresolved questions around custody strike at the core of regulatory authority.

The initial roundtable, framed by Commissioner Peirce’s call for experimentation and Acting Chair Uyeda’s critique of enforcement-led policymaking, produced cautious consensus on the need for clarity and dialogue.

The second roundtable advanced that momentum, drawing together DeFi developers, exchange operators, and legacy institutions to debate exchange architecture and investor protections, with participants converging around functional regulation and interoperable frameworks. In both, progress was made in articulating shared values and proposing paths for tailored modernization.

By contrast, the third roundtable exposed a deeper fragmentation, not only between regulators and industry, but within the industry itself. Unlike the first two sessions, where most disagreements were rooted in jurisdiction or scope, this session’s divisions were definitional: What is custody in a blockchain context? Who can perform it? Should self-custody be a right, or a risk?

The conversation became less about refining rules and more about questioning the foundation of those rules. While some participants gestured toward flexible standards or safe harbor regimes, no clear direction emerged. It marked a shift from coordinated problem-identification to philosophical divergence, with no roadmap in sight.

If the first two roundtables were architectural, sketching the outline of a modernized regulatory house, the third was geological, revealing tectonic pressures below. The risk is that these foundational contradictions will now stall the project.

Without a more decisive and directive posture, the SEC’s roundtable process risks devolving into a series of well-meaning but inert dialogues.

For this initiative to deliver, future sessions must build vertically, layering operational solutions atop the conceptual clarity already gained. Otherwise, the opportunity to lead the global debate on crypto governance may slip from the Commission’s hands just as its outlines begin to take form.