The U.S. Securities and Exchange Commission has proposed new rules governing how investment advisers and regulated funds hold crypto assets. The plan would establish a dedicated custody framework while updating requirements developed primarily for traditional financial assets.

Custody is a core compliance obligation for registered advisers: firms entrusted with client assets must be able demonstrate that those holdings are safeguarded. Crypto introduces considerations — such as private key management — that rules written for traditional financial assets were not designed to address, and that gap is what the new framework aims to close.

SEC Chairman Paul Atkins linked the proposal to crypto’s growth from a niche market into a major asset class. He said investment advisers need clearer ways to safeguard digital assets while remaining compliant with federal securities laws.

Proposal Would Allow Certain Crypto Self-Custody

Under the proposal, registered investment advisers could self-custody certain crypto assets if they meet specified requirements. The framework would also cover registered investment companies and business development companies.

The self-custody option departs from the conventional Advisers Act custody model, under which client assets are generally placed with qualified custodians such as banks or broker-dealers. Allowing direct safekeeping, subject to conditions, reflects the practical difficulty of finding third parties equipped to hold some digital assets.

Atkins previewed the approach in September, citing the continued lack of suitable third-party custodians for some digital assets. His earlier plan for adviser crypto self-custody also included a role for state trust companies. The latest proposal turns those policy statements into formal rulemaking.

The proposed changes would amend custody requirements under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. They would also address financial statement audits for registered advisers and broker-dealer custody services used by regulated funds.

The SEC has not adopted the framework, and the proposed provisions are not yet in effect. Until any final rule takes effect, advisers and funds remain subject to existing custody requirements.

State Trust Companies Could Provide Additional Custody Options

The SEC’s proposal would also allow advisers and regulated funds to use qualifying state trust companies for crypto custody. These companies could provide another option alongside banks and other permitted custodians.

The agency had already moved toward this model through staff guidance issued in 2025. That guidance provided conditional no-action relief involving certain state-chartered trust companies holding crypto assets. No-action relief applies only to the specific arrangements and conditions described in the guidance, so embedding the approach in a rule would give it broader and more durable application.

The broader rulemaking has been developing for months. The SEC previously sent its crypto custody framework to the White House for review — a routine step in the federal rulemaking process — while work continued on a replacement for earlier custody proposals.

State trust company custody has drawn disagreement within the Commission. Commissioner Caroline Crenshaw previously argued that state oversight can vary and may provide fewer safeguards than federal banking supervision. The public comment process gives market participants an opportunity to address contested elements of the framework directly, including the state trust company pathway that has divided the Commission.

The current effort follows an adviser custody proposal introduced under the SEC’s previous leadership that never became a final rule. The agency later revived its crypto custody rulemaking as part of its broader digital asset agenda.

Custody Proposal Part of Broader Digital Asset Agenda

The custody plan comes alongside other SEC initiatives involving crypto offerings, tokenized securities, and market infrastructure. Atkins has described these efforts as connected elements of the agency’s approach to digital assets.

In August, the Commission proposed Regulation Crypto Assets, which would create tailored exemptions for certain investment contracts involving digital assets. The SEC has also updated its approach to transfer agents as securities increasingly use blockchain-based records.

The proposed custody framework concerns how regulated firms hold crypto assets. It does not determine whether particular tokens qualify as securities. Those classification questions remain subject to separate SEC interpretations and rules.

Public comments will remain open for 60 days after the custody proposal is published in the Federal Register. After reviewing feedback, the Commission may revise the proposed requirements before considering whether to adopt final rules. Because token classification is handled through a separate workstream, firms evaluating the custody proposal may need to track both efforts as they assess their compliance arrangements.

Source: https://blockonomi.com/us-sec-proposes-new-crypto-custody-rules-for-investment-advisers-and-funds/