SEC Proposes New Crypto Custody Framework to Remove Barriers for Investment Advisers
In a new proposal, the SEC would permit investment advisers to self-custody certain crypto assets and authorize state trust companies to function as qualified custodians.
The United States securities regulator has put forward a proposal to relax regulations surrounding the custody of cryptocurrency by investment advisers and funds, which could remove a regulatory obstacle that has prevented certain firms from providing digital asset investment options to their customers.
According to the proposal released on Thursday, investment advisers would be permitted to custody their clients' cryptocurrency assets directly under specific circumstances when no qualified crypto custodian can be found. Additionally, the proposal would recognize state trust companies as acceptable custodians for digital assets.
"The crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure. Unfortunately, our rules and regulations have not kept pace," US Securities and Exchange Commission Chair Paul Atkins said in a statement.
The proposed changes address a significant operational challenge facing crypto investment: advisers often find it difficult to locate a qualified custodian for specific tokens, which constrains the range of investment products they can provide to their clientele.
The Digital Chamber has previously expressed concerns regarding the shortage of qualified cryptocurrency custodians. In a submission filed with the SEC in May 2025, the Digital Chamber reported that certain advisers had turned down token allocations or requested that portfolio companies hold onto them until appropriate custody solutions became accessible.
In Thursday's statement, SEC Commissioner Hester Peirce compared the uncertainty to a regulatory "roller coaster," stating that advisers have been "gritting their teeth and holding on for dear life" while awaiting workable custody rules.
Self-custody would come with safeguards
According to the SEC's proposal, investment advisers who wish to custody their clients' cryptocurrency directly would need to demonstrate that no qualified custodian is available for each particular asset and conduct a reassessment of this determination on a quarterly basis. Should a qualified custodian become available, the assets would be required to be transferred as soon as reasonably practicable.
The self-custody arrangement would also mandate protective measures concerning private keys, cybersecurity protocols and the segregation of individual client assets. Any transfer of a self-custodied cryptocurrency asset would require approval from a minimum of two authorized individuals.
SEC Commissioner Mark Uyeda said the proposal recognized that adviser custody creates "an inherent conflict of interest," and that advisers' fiduciary duties would continue to apply when they hold clients' crypto.
The proposal would additionally permit regulated funds to keep cryptocurrency assets in self-custody arrangements with their investment adviser, as long as the adviser satisfies the self-custody requirements and the fund's board provides oversight of the arrangement.
State trust company option
Utilizing a state trust company — a financial institution that has been authorized by a US state to hold and manage assets on behalf of others — would be subject to distinct conditions.
These conditions include verifying that the state trust company has authorization from the appropriate state authority to offer crypto custody services, has implemented reasonable procedures to protect crypto assets from loss, theft or misappropriation and possesses audited financial statements and internal control reports and confirming that client assets are kept separate from the company's proprietary assets.
The proposed package also includes modifications to audit, recordkeeping and disclosure obligations. The SEC will collect public comments for a period of 60 days following the proposal's publication in the Federal Register.
This most recent proposal contributes to an effort by the SEC and Commodity Futures Trading Commission to establish more definitive cryptocurrency regulations under their current statutory authority after the CLARITY Act stalled in the Senate last month. The CFTC has forwarded a crypto-market proposal to the White House for review, while the SEC has created a pathway for the trading of tokenized stocks.