Key Takeaways
- • SEC proposes new custody framework under the Investment Advisers Act of 1940 and Investment Company Act of 1940, allowing registered investment advisers and regulated funds to hold cryptocurrency through state trust companies and self-custody under specific conditions.
- • Self-custody permitted only when no qualified custodian will hold the assets and only if the adviser holds the keys alone, with quarterly reassessments required to maintain compliance.
- • Proposal addresses a "qualified custodian bottleneck" that has delayed token launches and crypto fund strategies by clarifying custody arrangements that satisfy regulatory standards.
- • SEC Chairman Paul Atkins framed the proposal as replacing "the grey of uncertainty created by custody rules crafted for a bygone era," signaling intent to remove regulatory barriers inhibiting crypto-related investment advice.
- • Rule opens 60-day public comment period; framework also updates financial-statement audit and broker-dealer custodial requirements, expected to boost institutional adoption and fundraising activity.
Summary
The U.S. Securities and Exchange Commission has proposed a comprehensive custody framework designed to modernize how registered investment advisers and regulated funds hold digital assets. The proposal, issued under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, establishes clear guidelines for "qualified custodian" arrangements that have been ambiguous under legacy regulations. SEC Chairman Paul Atkins characterized the move as replacing regulatory uncertainty with clarity, addressing rules that were not designed for digital-asset environments.
The framework permits two primary custody pathways. First, crypto assets may be held through state trust companies, which would serve as qualified custodians under the new standard. Second, advisers may employ self-custody arrangements, but only under constrained conditions: self-custody is available only when no qualified custodian is willing to hold the specific asset, and only if the adviser maintains sole control of private keys. Advisers utilizing self-custody must conduct quarterly reassessments to confirm that no qualified custodian has become available. The proposal also updates financial-statement audit requirements and broker-dealer custodial standards to accommodate digital assets.
The proposal directly targets what the SEC identifies as a "qualified custodian bottleneck"—a regulatory gap that has prevented many investment firms from launching crypto-related strategies and delayed token issuance timelines. By establishing explicit custody pathways, the framework removes a critical barrier to institutional participation in digital assets. The SEC anticipates that regulatory clarity will encourage institutional adoption of crypto strategies and facilitate fundraising by investment advisers offering such products.
The proposal is not final and will enter a 60-day public comment period, allowing industry participants, custodians, and other stakeholders to provide feedback before the SEC finalizes the rule.
The framework permits two primary custody pathways. First, crypto assets may be held through state trust companies, which would serve as qualified custodians under the new standard. Second, advisers may employ self-custody arrangements, but only under constrained conditions: self-custody is available only when no qualified custodian is willing to hold the specific asset, and only if the adviser maintains sole control of private keys. Advisers utilizing self-custody must conduct quarterly reassessments to confirm that no qualified custodian has become available. The proposal also updates financial-statement audit requirements and broker-dealer custodial standards to accommodate digital assets.
The proposal directly targets what the SEC identifies as a "qualified custodian bottleneck"—a regulatory gap that has prevented many investment firms from launching crypto-related strategies and delayed token issuance timelines. By establishing explicit custody pathways, the framework removes a critical barrier to institutional participation in digital assets. The SEC anticipates that regulatory clarity will encourage institutional adoption of crypto strategies and facilitate fundraising by investment advisers offering such products.
The proposal is not final and will enter a 60-day public comment period, allowing industry participants, custodians, and other stakeholders to provide feedback before the SEC finalizes the rule.
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