SEC Proposes Crypto Custody Framework for Investment Advisers and Funds

The United States Securities and Exchange Commission has proposed a new regulatory framework for crypto custody by investment advisers and regulated funds, giving the industry a compliant path to hold digital assets for clients where none existed before. The proposal, published on October 1, 2026, modernises custody rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940 and will remain open for public comment for 60 days after publication in the Federal Register.

What the Crypto Custody Proposal Contains

The Commission’s proposal addresses how registered investment advisers and regulated funds can hold crypto assets for clients under the federal securities laws. Under the plan, advisers could hold crypto themselves under specified conditions when no permitted custodian is available, subject to safeguards and reassessments. State-chartered trust companies would be eligible to serve as qualified custodians after verification of their authority and safeguards.

The proposal would also update requirements relating to financial-statement audits for registered investment advisers and broker-dealer custodial services for regulated funds. According to the SEC, the framework would remove custody barriers that restrict crypto-related investment advice and allow regulated funds to offer clients access to a wider range of crypto investment strategies.

Atkins: Rules Have Not Kept Pace

In his statement, SEC Chairman Paul S. Atkins said the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class since the advent of Bitcoin in 2008, but that “our rules and regulations have not kept pace”. The proposal, he said, would “provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before.”

He shared the proposal’s statement in an October 3 post on X, noting that it addresses long-standing uncertainty over how advisers and funds can legally hold crypto assets for clients.

Commissioners Split on Self-Custody

Commissioner Hester Peirce, who led the SEC’s Crypto Task Force, clarified in a separate statement that “self-custody” in the adviser context means the adviser acting as custodian for client assets, not retail investors holding their own keys. She also emphasised protecting investors’ right to true self-custody where appropriate.

Commissioner Mark Uyeda cautioned that adviser custody creates an inherent conflict of interest, noting that fiduciary duties would still apply. Peirce leaves the Commission at the end of October 2, which will leave it with two members — Atkins and Uyeda.

Part of a Broader Crypto Agenda

The custody proposal follows the SEC’s Innovation Exemption in September and a Regulation Crypto Assets proposal in August, and comes as the Senate has failed to pass the Clarity Act while the Commodity Futures Trading Commission pursues parallel crypto rulemaking. The Commission stressed that nothing in the package is final until after the 60-day comment period and a final vote.

Analysts covering the business beat say the proposal could significantly expand the range of crypto strategies offered by US funds if adopted, by settling the legal questions that have kept many advisers on the sidelines.

Conclusion

The SEC’s October 1 proposal marks the most detailed attempt yet to fit crypto into the custody rules that govern American advisers and funds. Whether it survives the 60-day comment period — and a two-member Commission — will shape how Wall Street handles digital assets for years to come.

Frequently Asked Questions

Who does the SEC crypto custody proposal cover?

Registered investment advisers, registered investment companies and business development companies.

Does the proposal allow self-custody of crypto?

Yes, under conditions — advisers could act as custodian for client crypto assets when no permitted custodian is available, with safeguards and regular reassessments.

When does the public comment period end?

The comment period will remain open for 60 days after the proposing release is published in the Federal Register.