SEC Proposes Clear Custody Framework for Crypto Assets Held by Advisers and Funds
Quick Look
The U.S. Securities and Exchange Commission proposed a tailored framework on Wednesday to clarify how registered investment advisers and regulated funds can custody crypto assets, aiming to end years of regulatory ambiguity by permitting self-custody under certain conditions, allowing state trust companies as custodians, and updating audit rules, with a 60-day public comment period to follow.
AI-generated summary
Why It Matters
The SEC has been working to clarify crypto regulations amid growing institutional interest, following stalled legislative efforts like the Clarity Act and prior actions such as the innovation exemption for tokenized stocks and guidance on token buybacks.
The Securities and Exchange Commission is moving to settle one of the thorniest questions in institutional crypto: how professional money managers are supposed to hold the assets.
The agency on Wednesday proposed a tailored framework governing how registered investment advisers and regulated funds can custody crypto, aiming to replace years of regulatory ambiguity with a clear compliance path.
Advisers are required to keep client assets with "qualified custodians" that meet strict safekeeping standards, but it has long been unclear which crypto arrangements satisfy that bar, leaving many firms hesitant to offer digital-asset strategies at all.
The proposal, issued under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, would ease that bottleneck in several ways. It would permit crypto assets to be held in self-custody under certain conditions, allow state trust companies to serve as custodians for client and fund crypto, and update rules around financial-statement audits for advisers and broker-dealer custodial services for funds.
The stated goal is to widen investor access to crypto strategies by removing barriers that have kept advisers on the sidelines.
"Since the advent of Bitcoin in 2008, the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure," SEC Chairman Paul Atkins said in a statement, adding that the agency's rules "have not kept pace" and that the proposal would replace "the grey of uncertainty created by custody rules crafted for a bygone era."
The custody plan is the latest piece of a sweeping regulatory build-out the SEC has pursued since the Clarity Act stalled in the Senate.
The agency rolled out an "innovation exemption" letting tokenized stocks trade on-chain, proposed a crypto-fundraising framework dubbed Regulation Crypto Assets, and had staff clarify that token buybacks don't by themselves make a crypto asset a security.
Together, the moves reflect a broader shift in which crypto has stopped waiting on Congress and leaned into the regulators.
The proposal is not final. A 60-day public comment period will open once it's published in the Federal Register, after which the agency can revise the rules before any vote to adopt them.
What to Watch
AI outlook — possibilities, not facts
The SEC will adopt the proposed crypto custody framework after the 60-day public comment period, possibly with minor revisions.
Likely · Within months
State trust companies will begin applying to serve as crypto custodians once the rules are finalized.
Possible · Within months
Open Questions
- What specific conditions will allow self-custody of crypto assets under the proposal?
- Which state trust companies are likely to seek approval as crypto custodians?
- How will the updated audit rules affect compliance costs for advisers and broker-dealers?
