SEC proposes framework allowing investment advisers, funds to self-custody crypto

The U.S. Securities and Exchange Commission on Thursday proposed a new regulatory framework governing how investment advisers and regulated funds may hold crypto assets, in what the agency framed as an attempt to modernize custody rules written long before digital assets existed.

According to The Block, the proposal is designed to provide a compliant pathway for holding digital assets under rules that largely predate the internet, and would address a gap for institutional investors in cases where qualified custodial infrastructure for certain crypto assets may not yet exist. The framework would permit crypto assets to be held in self-custody under certain circumstances and would allow state trust companies to serve as custodians for client and regulated fund crypto assets.

CoinDesk reported that the rule would clarify which firms can hold crypto assets belonging to investment firms' clients, while also opening a limited ability for advisers to self-custody client holdings themselves. The proposal is open for a 60-day public comment period, after which the Commission would weigh feedback before moving toward any final rule. As with all proposed rules, nothing takes effect immediately, and the text could change substantially before adoption.

SEC Chair Paul Atkins said existing custody requirements were built to protect advisory clients and funds from loss, theft, misuse and misappropriation, but contemplate only traditional assets, a situation he described as "an untenable situation in the 21st century," per CoinDesk. Atkins also signaled more rulemaking ahead, saying in remarks reported by The Block that additional regulatory proposals are on the horizon as the agency works with the Trump administration on digital asset policy.

The custody proposal is the latest in a series of crypto-related rulemakings from the agency. CoinDesk noted that Thursday's publication follows the SEC's Innovation Exemption last month and its Reg Crypto releases in August, forming a broader package aimed at defining how digital assets fit within existing securities law. The Block framed the move as regulators pushing ahead on their own after the Clarity Act's defeat in the Senate, with agency rulemaking rather than legislation becoming the near-term vehicle for crypto policy in the United States.

The timing is also notable for internal reasons. CoinDesk reported that the proposal arrived the day before the departure of Commissioner Hester Peirce, who has led the SEC's Crypto Task Force since its creation and who leaves the agency on Friday to take up a professorship in Virginia. Her exit leaves the Commission with just two sitting commissioners. Earlier in the week, the SEC moved to reduce the number of commissioners required to form a quorum, shifting from a minimum of three to two, a change that allows the agency to continue acting on rulemakings while seats remain vacant.

For crypto market participants, the practical significance of the proposal lies in who is permitted to hold assets on behalf of professional investors. Custody has been a persistent bottleneck for registered advisers and funds seeking exposure to digital assets, because the existing rules were drafted around traditional securities held at banks and broker-dealers. Allowing state-chartered trust companies to act as custodians, and permitting self-custody in narrow cases, would widen the set of arrangements available to regulated firms if the proposal is finalized in its current form.

What happens next depends on the comment process. Industry groups, custodians, consumer advocates and legal practitioners typically file responses during the 60-day window, and the SEC may revise, repropose or shelve the framework. This article is for informational purposes only and is not investment, legal or tax advice.

This is a news summary for general information only — not financial advice, and nothing here is a recommendation to buy, sell, or hold any asset. Always verify against the original source and do your own research before making a financial decision.