SEC Proposes New Crypto Custody Rules for Advisers and Funds

The U.S. Securities and Exchange Commission has proposed a new framework for how registered investment advisers and regulated funds can hold crypto assets, in a move that could make it easier for traditional financial firms to offer digital-asset strategies.

The proposal, announced on October 1, would update custody requirements under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. It is intended to give advisers and funds a clearer path for safeguarding crypto assets while maintaining investor protections.

The proposal is not yet a final rule. A 60-day public comment period will open following publication in the Federal Register, after which the SEC can revise the framework before considering final adoption.

Why Crypto Custody Has Been a Problem for Advisers

Registered investment advisers are generally required to keep client assets with qualified custodians that meet specific safekeeping standards.

Crypto has created complications because traditional custody rules were written long before digital assets existed. That has left many firms uncertain about whether particular crypto custody arrangements meet federal requirements.

SEC Chair Paul Atkins said the existing framework had not kept pace with the growth of digital assets and that the proposal is intended to give advisers and funds a compliant route for custody.

That could matter for firms that want to offer clients exposure to assets such as Bitcoin and Ethereum without operating in a regulatory gray area.

For context, see our Bitcoin rally analysis.

SEC Proposal Would Allow State Trust Companies as Custodians

One of the most significant changes is that the proposal would allow certain state trust companies to serve as custodians for crypto assets held by investment advisers and regulated funds.

That could expand the number of institutions able to provide compliant custody services.

The SEC proposal would also modernize related requirements involving:

• financial statement audits for registered investment advisers

• broker-dealer custodial services for regulated funds

• reporting and recordkeeping requirements

• custody of crypto securities and other crypto assets

The aim is to better align decades-old rules with current market practices.

Self-Custody Could Be Allowed in Limited Circumstances

The proposal would also permit crypto assets to be held through self-custody under certain conditions.

That is a notable change because self-custody is one of the defining features of cryptocurrency.

In traditional finance, assets are usually held by intermediaries such as banks, brokers or specialized custodians. With crypto, control can instead depend directly on cryptographic keys.

However, self-custody comes with significant operational responsibilities. Losing access to private keys or failing to secure them properly can result in permanent loss.

New to this topic? Our guide explains what a crypto wallet is.

The SEC proposal does not mean advisers would simply be free to hold client assets however they want. Any permitted self-custody arrangement would still need to meet specific safeguards and compliance requirements.

Why the Proposal Matters for Institutional Crypto Adoption

The biggest impact could be on financial advisers and regulated investment funds that have so far avoided crypto strategies because of custody uncertainty.

If a final framework provides clearer rules, firms may have more confidence offering exposure to digital assets.

That could support a wider range of products involving:

• Bitcoin

• Ethereum

• crypto securities

• tokenized assets

• institutional crypto strategies

The proposal comes as institutional interest in digital assets continues to expand.

Ethereum, for example, has seen substantial ETF-related demand this year, although recent flows have turned negative.

Read our Ethereum market outlook.

This Is a Proposal, Not a Final Rule

That distinction is important.

Nothing in the October 1 announcement means advisers or funds can immediately change how they custody crypto assets.

The SEC has published a proposed rule. The public will have 60 days after Federal Register publication to submit comments.

The Commission may then:

• adopt the proposal

• modify it

• delay it

• or decide not to adopt it

Industry feedback will likely focus heavily on how self-custody safeguards work in practice and what requirements state trust companies would need to meet.

What Comes Next for U.S. Crypto Regulation?

The proposal is another sign that U.S. crypto regulation is becoming more detailed rather than relying only on enforcement actions.

For investors, the immediate effect is limited because the rules are not yet final.

For advisers, asset managers and custody providers, however, the proposal could eventually remove a major obstacle to offering crypto products within existing regulated structures.

If adopted in a workable form, clearer custody rules could become an important building block for broader institutional crypto adoption in the United States.

For the fundamentals, see our guide US Crypto Regulation Basics.