SEC Floats Updated Custody Framework for Crypto Assets Held by Advisers and Funds

The U.S. Securities and Exchange Commission has released a new proposal that would reshape how investment advisers and regulated funds can custody cryptocurrency on behalf of clients. SEC Chairman Paul Atkins said the initiative is designed to remove uncertainty in existing rules and give firms a clearer, compliant path for holding crypto assets. The proposal outlines expectations around recordkeeping, public disclosure and supervisory oversight when advisers and funds hold clients' crypto. Under the draft, self-custody of crypto would be permitted in certain circumstances. It would also allow state-authorized trust companies to serve as custodians. Atkins said the core objective of custody rules is investor protection—guarding assets against loss, theft, misuse and embezzlement—but argued the current framework was built primarily for traditional financial instruments. He said the existing system does not adequately address a market that has expanded rapidly since Bitcoin's debut into a multitrillion-dollar asset class. The SEC said the proposal also targets a recurring industry bottleneck: securing suitable third-party custodians, particularly for newly issued crypto assets, a process that can take months. Beyond crypto-specific custody questions, the Commission also intends to update what it described as outdated custody provisions under the Investment Advisers Act and the Investment Company Act of 1940. The draft aims to align recordkeeping, auditing and custody standards with current industry practice. The proposal will be subject to a 60-day public comment period. The SEC will determine the final rules after reviewing feedback. The move extends the SEC's broader crypto agenda under Atkins. The agency has recently issued statements on tokenized securities, weighed in on when crypto assets may qualify as securities, and in August proposed a wider package dubbed "Regulation Crypto Assets". In September, it also introduced an "Innovation Exemption" intended to support on-chain trading of tokenized shares under certain conditions. The August "Regulation Crypto Assets" proposal would also establish a specialized securities issuance framework for certain crypto asset investment contracts. This is not investment advice. Continue Reading: SEC Chair Unveils New Cryptocurrency Rules