A16z Calls on SEC to Revise RIA Custody Framework for Crypto Assets

Andreessen Horowitz (a16z) has urged the U.S. Securities and Exchange Commission (SEC) to update its regulatory framework for how registered investment advisers (RIAs) handle digital asset custody.

In an April 9 letter to the SEC's Crypto Task Force, the firm argued that current regulations fail to reflect the unique characteristics of crypto assets and limit market players’ ability to engage with the full utility of tokens.

What A16z Proposes

The proposal centers on registered investment advisers (RIAs), who are legally required to store client assets with qualified custodians. According to a16z, this traditional framework does not translate well to digital assets, where functionality goes beyond mere custody and includes features such as:

• Participation in governance voting 
• Staking
• DeFi activities
• Loyalty programs
• Passive income

The firm urged the SEC to introduce interim measures and publish updated guidance that would allow RIAs to engage directly with cryptocurrencies, provided they meet specific security standards. These include independent audits, secure key management, reliable reporting, and clear asset segregation.

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According to a16z, the aim is not to expand regulatory reach over new asset classes but to adjust existing rules to reflect the realities of decentralized finance. The firm argues this approach would maintain investor protection while enabling access to the full potential of Web3.

Why It Matters

At the core of the initiative is the argument that RIAs should be allowed to custody digital assets directly when no appropriate third-party solutions are available. This becomes especially relevant when custodians do not support critical token functionalities such as staking, participating in DAO governance, or enabling yield generation. 

According to a16z, restricting access to these features not only reduces the potential value for clients but also distorts the core principles of crypto engagement.

Additionally, the firm proposes a shift from a formal to a functional approach, emphasizing that the key issue is not who holds the assets, but how securely and effectively the custody is managed. According to the proposal, eligible custodians could include not only federally chartered banks but also trust companies or other entities, as long as they meet standards: 

• Technical and financial audits 
• Key protection mechanisms
• Recovery plans 
• Transparency 
• Reporting

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The letter also raises the issue of flexibility. According to a16z, temporarily moving tokens off-platform to secure better pricing or access full functionality should not be treated as a custody violation. This would allow advisors to act in the best interest of clients while remaining within legal bounds.

Furthermore, the firm emphasizes that the proposal does not aim to weaken oversight. Instead, it seeks to establish a practical system of protection adapted to the evolving landscape. This approach could enable broader institutional adoption and contribute to building a transparent crypto market in the United States.