SEC Proposes Crypto Custody Framework for Investment Advisers and Funds

The U.S. Securities and Exchange Commission on Thursday proposed a crypto-specific custody framework for registered investment advisers and regulated funds, a significant federal step aimed at giving institutional investors a compliant way to hold digital assets under securities laws. The proposal would allow limited self-custody in some cases and permit state trust companies to serve as custodians for crypto assets.

The move addresses a long-running compliance problem for advisers and funds seeking crypto exposure. Traditional custody rules were built around securities and bank accounts, but crypto assets are controlled through private keys, raising distinct questions about who has control of the asset, how it is segregated and how operational risks are managed. That mismatch has left many firms without a clear path under existing rules.

The SEC said the proposed rules and amendments, announced Oct. 1, would create “a tailored framework for the custody of crypto assets for registered investment advisers and regulated funds” under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The affected entities include registered investment advisers, registered investment companies and business development companies.

According to the SEC, the proposal would modernize custody rules, expand investor choice and remove regulatory barriers that inhibit an adviser’s ability to provide crypto-related investment advice. It would also update financial statement audit requirements for registered investment advisers and revise broker-dealer custodial services requirements for regulated funds.

A central feature of the proposal is that it explicitly addresses crypto-specific arrangements that have been contentious or unclear. “The proposal would also permit crypto assets to be held in self-custody under certain circumstances and allow the use of state trust companies as custodians for client and regulated fund crypto assets,” the SEC said in its press release.

SEC Chairman Paul S. Atkins, in a separate statement, said the agency was trying to replace uncertainty with a workable compliance framework. “To that end, today’s proposal would provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before — and replacing the grey of uncertainty created by custody rules crafted for a bygone era,” Atkins said.

The proposal is not a final rule. It will be subject to public comment for 60 days after publication in the Federal Register.

The practical challenge for regulators is that crypto custody does not work like traditional asset custody. For stocks or cash, custody usually depends on accounts held through established financial intermediaries. For crypto, possession and control can turn on access to cryptographic keys, making issues such as loss, theft, segregation of customer assets and recovery procedures more central to the legal analysis.

The new proposal also stands apart from the SEC’s broader 2023 “Safeguarding” proposal, which sought a wider overhaul of adviser custody rules and drew criticism from asset managers and crypto firms. Critics argued that approach could make common crypto custody arrangements difficult or unavailable. By contrast, Thursday’s proposal is narrower and directly addresses crypto-specific questions, including when self-custody may be allowed and whether state trust companies can qualify as custodians.

The SEC framed the proposal as part of a broader crypto policy effort in 2025 and 2026, but Thursday’s action is focused specifically on custody. The agency pointed to a March 17, 2026, interpretive release on how federal securities laws apply to certain crypto assets and transactions, as well as its separate August 2026 proposed rule, “Regulation Crypto Assets.”

For advisers, funds and custodians, the immediate significance is that the SEC has now formally proposed a federal framework tailored to crypto custody rather than trying to fit digital assets entirely into rules written for older forms of property. Whether and how the agency finalizes that framework will depend in part on comments submitted during the 60-day comment period after the proposal is published in the Federal Register.