The U.S. Securities and Exchange Commission has proposed new rules establishing a dedicated framework for how registered investment advisers and regulated funds can custody crypto assets, potentially expanding the options available to institutions offering digital asset exposure.
The proposal, announced on October 1, applies to registered investment advisers, registered investment companies and business development companies. Filed as S7-2026-35, it was proposed under the Investment Advisers Act of 1940 and Investment Company Act of 1940. A 60-day public comment period will begin after publication in the Federal Register.
SEC Chairman Paul Atkins said existing custody requirements were developed before cryptocurrencies became a significant part of financial markets.
According to Atkins, the proposal is intended to provide clearer custody rules while maintaining investor protections.
Self-Custody Could Become an Option
One of the most significant changes concerns the SEC's qualified custodian requirements.
Investment advisers generally must place certain client assets with qualified custodians, such as banks or registered broker-dealers. Applying those requirements to crypto has created difficulties because digital assets can be held through technological arrangements that differ considerably from traditional securities.
The new proposal would establish circumstances in which registered investment advisers could self-custody crypto assets, provided they satisfy specified conditions designed to protect client assets.
This represents an important shift because it recognizes that requiring an independent third-party custodian may not always be the only appropriate arrangement for digital assets.
The proposal would also allow certain state-chartered trust companies to serve as crypto custodians for advisory clients and regulated funds, subject to the framework's requirements.
SEC Addresses Rules for Funds and Audits
The changes extend beyond self-custody.
The SEC is proposing amendments concerning financial statement audits for registered investment advisers and the custody arrangements that regulated funds use when working with broker-dealers.
For regulated funds, the proposal would create crypto-specific standards addressing circumstances where assets are held with qualifying custodians.
The broader objective is to reduce uncertainty around which institutions can legally safeguard crypto assets while preserving controls intended to prevent loss, misuse or improper access.
If adopted, the rules could make it easier for advisers and funds to develop crypto strategies without having to interpret custody requirements originally designed around conventional financial assets.
Proposal Reverses Direction From 2023
The new approach differs substantially from the SEC's previous custody proposal.
In February 2023, the Commission voted 4-1 to propose the Safeguarding Advisory Client Assets rule, which would have expanded custody requirements beyond funds and securities to cover essentially all client assets held by registered advisers.
That proposal would have required advisers to maintain covered assets with qualified custodians while introducing additional requirements involving written agreements, asset segregation and independent verification.
Commissioner Hester Peirce opposed the proposal, arguing that expanding the custody requirement while limiting viable custodians could create significant difficulties for advisers holding cryptocurrency.
The SEC ultimately withdrew the 2023 safeguarding proposal in June 2025, leaving the agency to develop a different approach to digital asset custody.
Earlier Guidance Paved the Way
The latest proposal follows several SEC actions addressing crypto custody through agency guidance.
In September 2025, the Division of Investment Management issued a no-action position concerning certain state-chartered trust companies acting as crypto custodians, subject to conditions involving due diligence, disclosure and the adviser's determination that the arrangement serves clients' best interests.
Then-Commissioner Caroline Crenshaw criticized that approach, arguing that questions involving investor protection and custody should be addressed through formal Commission rulemaking rather than staff guidance. The new proposal now moves the issue into the formal rulemaking process.
It also forms part of a broader SEC effort to establish clearer rules for digital assets under existing federal securities laws, alongside other initiatives addressing tokenized markets and crypto trading infrastructure.
For advisers and regulated funds, the proposal could significantly change how digital assets are held. Conditional self-custody and expanded eligibility for state trust companies could provide additional institutional custody options, while the final requirements will depend on feedback received during the upcoming 60-day comment period.
