The U.S. Securities and Exchange Commission (SEC) has put forward a proposal to create a clearer custody framework for crypto assets held by registered investment advisers and regulated funds. The initiative addresses one of the central challenges facing institutions that want to enter the crypto space: managing digital assets securely while remaining compliant with federal securities regulations.

Under the plan, the SEC would amend the custody requirements of the Investment Advisers Act of 1940 and the Investment Company Act of 1940, addressing how advisers and funds can custody crypto assets under federal securities laws. The agency said the existing custody rules apply primarily to the safeguarding of traditional assets and failed to consider the needs of blockchain-based assets. If adopted, the changes would allow investment advisers and regulated funds to offer cryptocurrency investment strategies more easily while continuing to adhere to investor protections.

The proposal would also expand the range of venues in which crypto assets can be stored. These would include select state-chartered trust companies equipped with the necessary safeguards, and the SEC indicated that more flexibility may be warranted under the rules via qualified custodians, state trust companies, and limited self-custody options. For institutions, that mix of permissible venues broadens the practical pathways for holding digital assets within a regulated perimeter.

Limited Self-Custody Under Strict Conditions

One significant component of the plan is the provision for limited self-custody of cryptocurrencies under certain conditions. Advisers would have to prove that no approved custodian is available for a specific asset, and would need to redo these assessments periodically to confirm that remains the case.

Self-custody would entail further mandates covering private key security protocols, cybersecurity measures, asset separation, and asset transfer approval processes. Similar conditions may apply to regulated funds that use self-custody arrangements, subject to the oversight of the fund's board and compliance with the required safeguards.

Modern Rules for Digital Assets

SEC Chair Paul Atkins said crypto has grown from a niche technology into a multi-trillion-dollar asset class, while regulatory frameworks have struggled to keep pace. According to the SEC, the new custody rules would boost clarity for advisers and funds looking to gain exposure to digital assets.

The proposal further touches on financial statement audits, recordkeeping, and broker-de custody as they relate to regulated funds. The stated aim is to establish standards that more closely reflect marketplace practices while still tempering the risk of loss, theft, misuse, and misappropriation. The reach across these compliance areas underscores how custody obligations connect to a fund's broader regulatory duties, not just to where assets are stored.

The full text of the proposal is available in the SEC press release (), and Chair Atkins outlined his reasoning in a separate official statement ().

Crypto Regulation Expands Beyond Custody

The custody plan is one of a series of measures the SEC has taken to establish a framework for digital asset regulation. Recent efforts have included guidance on tokenized securities, regulatory interpretations on crypto assets, and proposals for secure investment products. The SEC has additionally taken steps connected to tokenized stocks and blockchain-based financial facilities. Custody arrangements sit at the foundation of that broader effort, since advisers and funds need a compliant way to hold digital assets before they can offer related strategies.

The agency noted blockchain's potential for modernizing financial markets, but said further regulatory activity is needed.

The public comment period for the custody proposal will remain open for 60 days after publication in the Federal Register. The SEC is seeking feedback from market participants, advisers, and crypto companies prior to finalizing any rules. Until a final rule is adopted, advisers and funds remain subject to the existing custody regime that the agency said was built for traditional assets — making the Federal Register publication, the comment window, and the commission's subsequent rulemaking steps the milestones to watch.

Source: Crypto Ninjas (https://www.cryptoninjas.net/news/sec-proposes-new-crypto-custody-rules-to-unlock-multi-trillion-dollar-market-access/)