The Securities and Exchange Commission released a proposal updating custody rules for investment advisers and regulated funds to address crypto assets, including limited self-custody, blockchain record use, and state trust company custodians.
The SEC would allow advisers and funds to self-custody crypto only when a permitted third-party custodian is unavailable and subject to conditions.
Blockchain-based records could count toward compliance if they meet the regulator’s conditions.
State-chartered trust companies would be eligible to serve as custodians for client and regulated fund crypto, with conditions attached.
The U.S. Securities and Exchange Commission has proposed updates to longstanding custody rules to address how investment advisers and regulated funds hold crypto assets. The proposal is framed as a modernization of rules written for a prior era of finance and aims to create clearer compliance paths for advisors and funds seeking to provide or hold crypto on behalf of clients.
The SEC would permit registered investment advisers and funds acting through advisers to hold client crypto directly in limited circumstances. That self-custody option would apply only when a permitted third-party custodian is not available. The agency also proposed allowing state-chartered trust companies to act as custodians for client and regulated fund crypto, subject to conditions the SEC would set.
The proposed rules say certain records kept on a blockchain could satisfy custody and recordkeeping requirements, provided the records meet the conditions specified by the SEC. This change acknowledges blockchain-native recordkeeping but conditions its use on meeting regulatory standards.
Conditions and safeguards (proposal details summarized)
Related reporting on the proposal describes several concrete conditions that advisers would need to meet for permitted self-custody. These include regularly determining the unavailability of qualified third-party custodians (reported as a quarterly determination), implementing operational safeguards such as cybersecurity protocols, and maintaining segregation of client assets. The SEC would attach conditions to state trust companies acting as custodians as well.
The rule proposal follows a recent procedural defeat for the Clarity Act in Congress. That legislation would have set a statutory framework distinguishing which digital assets are securities, commodities, or payment stablecoins. Lawmakers blocked the Clarity Act in a vote last month, but the SEC signaled it will continue rulemaking independently.
SEC Chairman Paul S. Atkins framed the proposal as a necessary update. He said the crypto asset market has grown substantially since Bitcoin's creation and that prior custody rules did not keep pace. Atkins described the proposal as providing a clearer regulatory framework and creating a compliant pathway for custody where none existed under older rules. He also said he will continue working to position the U.S. competitively in crypto policy regardless of the Clarity Act's status.
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