SEC Opens Door to Crypto Self-Custody for Investment Advisers and Funds

The U.S. Securities and Exchange Commission has proposed new crypto custody rules for registered investment advisers and regulated funds. The framework would enable self-custody in some instances and enable state trust companies to hold client crypto assets.

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SEC Proposes Conditional Crypto Self-Custody

The proposal would allow investment advisers to self-custody crypto when specific conditions are met. An adviser would require the necessary custody experience and appropriate internal controls.

Self-custody would be the general rule in situations where an appropriate qualified third-party custodian does not exist. Advisers would also need to reassess those arrangements regularly as custody options change.

SEC Chairman Paul Atkins said existing rules were built around traditional assets and had not kept pace with crypto markets. The proposal would establish “a clear regulatory framework for the custody of crypto assets,” he noted.

In September, the SEC had already indicated this direction. In a defined setting, Atkins said, rules were being prepared that will respond “yes” to adviser self-custody.

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State Trust Companies Could Serve as Crypto Custodians

The proposal would also permit certain state trust companies to custody crypto for advisers and regulated funds. That route expands the number of institutions potentially available for compliant digital asset custody.

The SEC previously sent its crypto custody proposal to the White House in August. That filing indicated the agency is working on changes to existing custody rules.

Atkins has argued that state trust companies already perform crypto custody services in practice. In addition, earlier guidance was issued by the SEC on state-chartered institutions and crypto custody.

The new rule would also revise the standards for auditing financial statements of registered advisers. It would cover broker-dealer custodial services of registered investment companies and business development companies.

SEC Continues Broader Crypto Rulemaking Push

This custody proposal forms part of the SEC’s broader initiative to develop rules for digital assets under federal securities law.

In August, the Commission introduced Regulation Crypto Assets, establishing specific pathways for selected crypto investment contracts. The framework also included exemptions and disclosure requirements for qualifying issuers.

More recently, the SEC issued an innovation exemption for tokenized stock trading, extending its rulemaking into blockchain-based securities markets.

The custody proposal now covers what can be done once advisers and funds do offer investment strategies involving crypto. Public comments will remain open for 60 days after publication in the Federal Register.