## KEY TAKEAWAYS
- SEC proposes tailored crypto custody framework for registered investment advisers and regulated funds, modernizing rules unchanged since the crypto asset class emerged post-2008.
- Proposal establishes two custody pathways: self-custody by advisers under specified conditions, and custody via state trust companies as qualified custodians.
- Framework removes regulatory barriers inhibiting adviser ability to provide crypto-related investment advice and expands regulated funds' access to crypto asset investment strategies.
- SEC Chair Paul Atkins stated the rules replace "the grey of uncertainty created by custody rules crafted for a bygone era" with clear compliant pathways.
- Proposal amends Investment Advisers Act of 1940 and Investment Company Act of 1940, addressing financial statement audits and broker-dealer custodial services alongside crypto-specific provisions.
- Bitwise general counsel welcomed the proposal but flagged unresolved questions regarding decentralized finance (DeFi) vault custody treatment.
## DETAILED SUMMARY
The Securities and Exchange Commission unveiled a comprehensive crypto asset custody proposal on October 1, 2026, addressing a regulatory gap that has persisted throughout the cryptocurrency market's explosive growth from niche asset to multi-trillion-dollar class. The proposal, issued under authority of the Investment Advisers Act of 1940 and Investment Company Act of 1940, establishes the first clear regulatory framework governing how registered investment advisers and regulated funds—including registered investment companies and business development companies—may custody client and fund crypto assets in compliance with federal securities law.
The proposal creates two distinct custody pathways. First, it permits registered investment advisers to hold crypto assets in self-custody under specified conditions, a departure from traditional custody models. Second, it authorizes the use of state trust companies as qualified custodians for client and regulated fund crypto assets. This dual-path approach aims to accommodate emerging industry practices while maintaining investor protections, according to the SEC's framing.
SEC Chairman Paul S. Atkins characterized the proposal as essential modernization, noting that custody regulations "have not kept pace" with the crypto asset class since Bitcoin's 2008 inception. He stated the new framework would "replace the grey of uncertainty created by custody rules crafted for a bygone era" by providing investment advisers and funds "a compliant pathway where none existed before." The SEC emphasized that removing these regulatory barriers would enable advisers to expand crypto-related investment advisory services and allow regulated funds to offer clients access to a broader range of crypto asset-related investment strategies.
Industry response proved mixed. Bitwise's general counsel welcomed the custody proposal's core provisions but publicly noted that significant questions regarding decentralized finance (DeFi) vault custody arrangements remained unresolved, indicating potential gaps in the framework's coverage of emerging crypto custody infrastructures. The proposal also encompasses amendments to financial statement audit requirements for registered investment advisers and broker-dealer custodial service provisions for regulated funds, suggesting a comprehensive overhaul of custody-related rules beyond crypto assets alone.
## KEY TAKEAWAYS
