SEC chair urges crypto users to adopt self-custody

The Securities and Exchange Commission released a regulatory framework that urges cryptocurrency users to hold their own private keys and warns against relying solely on third-party custodians for digital assets. The document outlines the agency’s priorities for oversight of crypto custody and trading platforms and places investor protection at the center.

The framework recommends that individuals know who holds their private keys and consider moving control to themselves using hardware wallets, multisignature setups or other self-custody methods. It sets expectations for firms that provide custodial services, including clearer disclosures about custody practices and stronger operational controls.

The SEC chair framed self-custody as a way for investors to assert direct control over tokens and reduce exposure to platform failures, fraud, hacks and insolvency. The framework notes that self-custody carries risks, including permanent loss if private keys or recovery phrases are misplaced, and urges users to adopt robust security practices.

The agency asked custodial firms to improve transparency about how assets are stored, whether assets are commingled, and what legal protections customers have if a provider fails. The document proposes more detailed auditing and reporting requirements for firms that take custody of customer tokens and indicates regulators may seek rulemaking to close oversight gaps.

For retail investors, the framework lists self-custody options and security steps. Hardware wallets keep private keys offline. Software wallets store keys locally on a device. Multisignature setups require multiple keys to move funds. The guidance recommends backing up recovery phrases, using reputable wallet software and splitting keys across trusted locations or custodians to reduce single points of failure.

The framework advises users who prefer custodial platforms to research providers’ insurance coverage, segregation of assets and disaster recovery plans. It does not ban custodial services; it asks for clearer labeling so customers understand whether they control their private keys and the level of counterparty risk.

The guidance follows years of enforcement actions and heightened scrutiny of crypto platforms. The SEC wrote that it seeks to make custody arrangements more transparent and to encourage practices that help prevent investor loss. The agency calls for collaboration with other regulators and industry stakeholders to develop custody, auditing and disclosure standards.

The SEC instructs users to understand who controls private keys, recognize risks tied to custodial platforms and consider self-custody if they want direct control over their digital assets.