SEC Proposes Easing Crypto Custody Rules for Investment Advisers
The U.S. Securities and Exchange Commission (SEC) has put forth a proposal aimed at simplifying the rules surrounding how investment advisers and funds hold cryptocurrency, potentially removing a significant regulatory obstacle that has hindered some firms from offering digital asset investments to their clients.
The proposal, unveiled on Thursday, would permit investment advisers to hold clients’ crypto assets directly, under specific conditions, when no eligible third-party custodian is available. It would also broaden the scope of entities that can act as crypto custodians to include state-chartered trust companies.
“The crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure. Unfortunately, our rules and regulations have not kept pace,” stated SEC Chair Paul Atkins in a release.
The initiative addresses a practical challenge in crypto investing: investment advisers often struggle to find qualified custodians for specific digital tokens, thereby limiting the investment options they can present to clients. The Chamber of Digital Commerce has previously voiced concerns regarding the scarcity of qualified crypto custodians. In a May 2025 submission to the SEC, the organization noted that some advisers had either rejected token allocations or requested portfolio companies to hold them until custody solutions became available.
SEC Commissioner Hester Peirce described the prevailing uncertainty as a regulatory “roller coaster,” remarking that advisers have been “gritting their teeth and holding on for dear life” while awaiting workable custody regulations.
Under the SEC’s proposed framework, advisers wishing to self-custody client crypto would be required to demonstrate that no approved custodian exists for each specific asset and to re-evaluate this determination on a quarterly basis. Should a custodian become available, the assets would need to be transferred promptly.
Self-custody would also necessitate robust safeguards for private keys, cybersecurity measures, and the clear segregation of each client’s holdings. Any transfer of self-custodied crypto assets would require approval from at least two authorized individuals.
SEC Commissioner Mark Uyeda acknowledged that adviser custody presents “an inherent conflict of interest,” emphasizing that advisers’ fiduciary duties would remain in effect when they hold clients’ crypto assets.
The proposal also suggests allowing regulated funds to maintain crypto assets in self-custody with their investment adviser, provided the adviser adheres to self-custody requirements and the fund’s board of directors oversees the arrangement.
The use of state-chartered trust companies—financial institutions authorized by a U.S. state to manage assets on behalf of others—would be subject to distinct conditions. These include ensuring the trust company is authorized by the relevant state authority for crypto custody, possesses adequate procedures to protect crypto assets from loss, theft, or misappropriation, and provides audited financial statements and internal control reports. Client holdings must also be kept separate from the company’s own assets.
The package further proposes modifications to audit, recordkeeping, and disclosure requirements. The SEC will accept public comments on the proposal for 60 days following its publication in the Federal Register.
This latest proposal is part of a broader effort by the SEC and the Commodity Futures Trading Commission (CFTC) to establish clearer regulatory frameworks for crypto assets within their existing authorities, particularly after the CLARITY Act did not advance in the Senate last month. The CFTC has submitted its own crypto market proposal for White House review, while the SEC has recently opened avenues for trading tokenized stocks.
