SEC Proposes New Custody Rules for Crypto Assets by Investment Advisers

The SEC's proposed framework addresses significant regulatory gaps in the custody of crypto assets, impacting trillions in potential investments.

• On October 1, 2026, the SEC proposed amendments to custody rules under the Investment Advisers Act and Investment Company Act.
• The proposal allows registered investment advisers and regulated funds to self-custody crypto assets or use state-chartered trust companies when qualified custodians are unavailable.
• A 60-day public comment period is now open, inviting feedback before finalizing the rules.

• Existing rules under the Advisers Act and Investment Company Act were outdated, creating compliance uncertainty for crypto assets.
• Previous SEC actions included a withdrawal of a safeguarding proposal and a review of custody rules, indicating a shift towards integrating crypto into U.S. markets.
• The proposal aims to modernize regulations, aligning them with the growing demand for crypto exposure among clients.

The SEC's proposal, filed under S7-2026-35, represents a significant shift in how investment advisers and regulated funds can handle crypto assets. Historically, the custody rules established decades ago did not account for the emergence of digital assets, leading to a compliance landscape fraught with uncertainty. By allowing conditional self-custody, the SEC is responding to the needs of a multi-trillion-dollar market that seeks more flexible and compliant pathways for crypto investment.

Under the new framework, registered investment advisers can self-custody crypto assets when no permitted custodian is available. This requires them to conduct quarterly reassessments and implement robust cybersecurity safeguards. Additionally, state-chartered trust companies can serve as custodians, provided they undergo annual due diligence to ensure compliance with state regulations. This dual approach aims to balance the need for security with the practical realities of the evolving crypto landscape.

SEC Chairman Paul S. Atkins emphasized that the proposal is designed to align regulatory frameworks with client demand for crypto exposure. This is a crucial step in positioning the U.S. as a leader in the global crypto market. The proposal also updates audit requirements and recordkeeping practices, ensuring that advisers and funds can maintain compliance while navigating the complexities of digital assets.

Commissioner Hester Peirce and other SEC officials have expressed support for the proposal, highlighting the importance of establishing workable compliance paths that include fiduciary safeguards. The public comment period will play a vital role in shaping the final rules, allowing stakeholders to voice their concerns and suggestions.

As the SEC moves forward with this proposal, it reflects a broader trend of regulatory modernization aimed at integrating crypto into traditional financial markets. This is not just about compliance; it's about creating a framework that fosters innovation while protecting investors.

• Registered Investment Advisers: They will need to adapt to new compliance requirements and may benefit from increased flexibility in managing crypto assets.
• Regulated Investment Companies: These entities will have new options for custodying digital assets, potentially attracting more investment.
• State-Chartered Trust Companies: They may see increased business opportunities as custodians for crypto assets.
• Investors: Individuals seeking exposure to crypto through regulated channels will have more secure options for asset management.

• Public feedback: The responses during the 60-day comment period will shape the final rules and indicate industry sentiment towards the proposal.
• Market reactions: Watch for any shifts in investment patterns or asset flows as advisers and funds adjust to the new custody options.
• Further regulatory developments: Keep an eye on additional SEC proposals or amendments that may emerge as the agency continues to modernize its approach to crypto.