The Securities and Exchange Commission (SEC) proposed a new framework for how registered investment advisers and regulated funds can custody crypto assets, including under certain conditions allowing self-custody and the use of state trust companies.
According to the official release on Thursday, the proposal would amend custody requirements under the Investment Advisers Act of 1940 and Investment Company Act of 1940 to account for the way digital assets are held and transferred. It also would update requirements involving financial statement audits and broker-dealer custody services for regulated funds.
The SEC said the proposed framework is intended to address custody arrangements that do not fit cleanly within rules developed before crypto assets existed.
SEC opens conditional self-custody route
One of the proposal‘s main changes would allow investment advisers and regulated funds to use self-custody for crypto assets under specified conditions.
The SEC’s approach follows Chairman Paul Atkins’ September remarks that the agency was developing a framework that could permit advisers to custody crypto assets themselves where appropriate, in part because qualified third-party custody options are not available for every digital asset.
The proposal does not create unrestricted permission for advisers or funds to hold client assets themselves. Instead, self-custody would be subject to conditions intended to address safeguarding, controls, and investor protection.
The framework would give advisers another custody structure alongside third-party custodians, rather than requiring every crypto asset to be held through a traditional qualified custodian.
State trust companies could serve as custodians
The SEC would also allow state trust companies to custody crypto assets for investment advisers and regulated funds under the proposed framework. The change would expand the types of institutions that could potentially provide custody services to SEC-regulated entities.
Atkins has previously said state trust companies already provide a custody pathway that works in practice and asked SEC staff to develop rules allowing their use for crypto assets subject to appropriate conditions.
The proposal therefore addresses two separate custody alternatives: advisers and funds potentially safeguarding assets themselves, and regulated entities using state-chartered trust companies.
Rules would apply to advisers and regulated funds
The proposed amendments cover registered investment advisers as well as registered investment companies and business development companies.
For advisers, the changes would modify the existing custody framework to account for crypto assets and related safeguarding arrangements.
For regulated funds, the SEC would update requirements concerning custody through broker-dealers and other service providers. The proposal also addresses financial statement audit requirements applicable to registered investment advisers.
The changes are intended to establish custody requirements specifically suited to digital assets rather than applying traditional custody concepts without modification.
Framework comes as SEC reworks crypto rules
The custody proposal is part of a broader SEC effort to update securities rules for crypto assets.
The agency issued its March 2026 interpretation on how federal securities laws apply to different types of crypto assets and transactions. In August, it proposed Regulation Crypto Assets, which would create tailored offering exemptions and a proposed safe harbor for certain crypto assets subject to investment contracts.
The custody proposal addresses a separate part of the market structure: how crypto assets are held once an adviser or regulated fund has exposure to them.
The SEC has also been working on rules covering tokenized securities and transfer agents. In September, the agency issued temporary exemptive relief for certain trading venues handling tokenized NMS stocks while seeking public input on the framework.
SEC seeks public comment
The proposed custody rules are not yet effective. The SEC will accept public comments for 60 days following publication of the proposing release in the Federal Register. The final framework could therefore differ from the proposal after the commission reviews comments from advisers, funds, custodians, investors and other market participants.
For now, the proposal establishes the SEC’s latest approach to creating custody options specifically for crypto assets while retaining regulatory conditions around how those assets are safeguarded.
SEC continues on-chain rulemaking without Congress
The move comes days after SEC Chairman Paul Atkins said the agency will continue developing rules for on-chain fundraising despite Congress failing to enact the CLARITY Act this month. Speaking in Washington on September 29, Atkins said the SEC would provide clarity on how companies can raise money on-chain under its existing authority.
Atkins outlined two tracks: defining the regulatory treatment of tokenized securities versus other tokenized assets, and using the SEC’s Innovation Exemption to allow companies to issue tokenized securities representing the underlying rights of those securities.
The SEC’s approach comes alongside its recent crypto guidance. On September 28, SEC staff updated its crypto FAQ to clarify that buyback announcements generally do not constitute promises of essential managerial efforts when a functional crypto system has no central party. For nonfunctional systems, however, a buyback announcement could carry different implications if presented as generating yield or returns for token holders.
The FAQ is staff guidance rather than a Commission rule and has no legal force or effect.
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