The U.S. Securities and Exchange Commission has proposed changes that could make it easier for investment advisers—and certain funds—to hold clients’ crypto assets when no qualified custodian is available for a given token. The measure, published Thursday, aims to remove a practical bottleneck that has limited how broadly advisers can offer digital asset exposure.
SEC Chair Paul Atkins said in a statement that the crypto market has grown into a multi-trillion-dollar asset class, but that existing rules have not kept pace with how investors seek access to it. The proposal targets specific custody requirements under federal investment-adviser and investment-company frameworks, where firms can face challenges securing “eligible” custody arrangements for particular assets.
Key takeaways
- The SEC proposal would allow advisers to hold certain client crypto assets themselves if no permitted custodian is available for each asset under the rules.
- Self-custody would come with conditions, including quarterly reassessment, private-key controls, cybersecurity requirements, and transfer approvals by at least two authorized individuals.
- The SEC would also permit state trust companies to act as crypto custodians if they meet authorization, safeguarding, segregation, and audited reporting standards.
- If a qualifying custodian becomes available, advisers and self-custody funds would generally need to transfer assets promptly—“as soon as reasonably practicable.”
- The SEC is accepting public comments for 60 days after publication in the Federal Register.
What the SEC is trying to fix in crypto custody
The SEC’s proposal focuses on a custody hurdle that has real operational consequences: advisers can struggle to identify qualified custodians for specific crypto assets. When a token does not have an approved custody path, advisers may reduce allocations, delay client exposure, or ask portfolio companies to retain assets until custody options improve.
This concern has been raised before. In a May 2025 filing to the SEC, the Digital Chamber argued that limitations in qualified custody availability have led some advisers to decline token allocations or temporarily keep assets at portfolio companies until custodial support is available. The SEC’s latest action is effectively a response to that same gap—shifting from “only eligible custodians can hold it” toward a conditional framework that can address exceptions.
SEC Commissioner Hester Peirce, in a Thursday statement, described the issue as a regulatory “roller coaster.” She argued that advisers have been waiting for workable custody rules while trying to comply with requirements that may not align with market realities—an uncertainty she framed as difficult for firms to manage.
Conditional adviser self-custody with compliance guardrails
Under the proposal, an investment adviser could hold clients’ crypto assets directly, but only under defined circumstances. The adviser would need to demonstrate that no permitted custodian is available for the specific crypto asset in question, and it would have to reassess that determination on a quarterly basis.
If a permitted custodian later becomes available, the adviser would be expected to move the assets to that custodian as soon as reasonably practicable. The rules are designed to prevent self-custody from becoming a default substitute for qualified custody.
The SEC also outlined guardrails intended to reduce operational and security risk. Self-custody would require safeguards around private keys and cybersecurity, as well as separation of each client’s holdings. In addition, at least two authorized individuals would need to approve any transfer of self-custodied crypto assets—an internal control measure aimed at limiting single-person authority over client funds.
SEC Commissioner Mark Uyeda said the proposal recognizes that adviser custody can create an inherent conflict of interest. However, he emphasized that advisers’ fiduciary duties would still apply when they hold crypto for clients, keeping legal responsibility intact rather than outsourcing the risk to a third party.
Extending the framework to certain funds and state trust companies
The SEC’s proposal is not limited to advisers acting alone. It would also allow regulated funds to maintain crypto assets in self-custody when the fund’s investment adviser meets the proposal’s self-custody requirements. The fund’s board would also need to oversee the arrangement, reflecting the SEC’s emphasis on governance and oversight when advisers are directly holding client assets.
Beyond self-custody, the proposal introduces a second pathway: the use of state trust companies as crypto custodians. The SEC laid out conditions for this option, including that the trust company be authorized by its relevant state authority to provide custody services for crypto; maintain reasonable procedures designed to safeguard assets from loss, theft, or misappropriation; and provide audited financial statements and internal control reports.
The SEC also specified segregation requirements—client holdings would need to be kept separate from the company’s own assets, a key safeguard for investor protection in custody models.
Finally, the package includes changes to audit, recordkeeping, and disclosure requirements. The SEC said it will accept public comments for 60 days after the proposal is published in the Federal Register, giving industry participants time to assess how the standards would work in practice.
Why this proposal lands now: the SEC-CFTC regulatory reset
The SEC’s move fits into a broader regulatory effort by U.S. market regulators to establish clearer crypto frameworks using existing authority. The SEC and the CFTC have been working on approaches that do not rely entirely on the stalled legislative route.
In the source material, the proposal is presented as building on momentum after the CLARITY Act failed to advance in the Senate last month. The CFTC has also submitted a crypto market regulation plan for White House review, and the SEC has previously opened pathways related to tokenized securities under its authority.
From an investor and market-structure perspective, the custody question is foundational. Even where trading or tokenized exposure is possible in theory, advisers can be constrained in practice by custody eligibility. By creating conditional exceptions—self-custody with enhanced controls and a state trust company option—the SEC appears focused on unlocking product availability without eliminating the need for oversight.
Still, major uncertainty remains: the proposal is not final, and firms will need to evaluate how the quarterly reassessment, transfer approval requirements, and segregation standards would be implemented operationally—especially for advisers managing multiple clients and a wide range of crypto exposures.
As the 60-day comment window approaches, market participants should watch for how the SEC clarifies the “no permitted custodian available” standard, what documentation advisers will be expected to maintain, and whether the state trust company pathway expands custody capacity quickly enough to address the token-level gaps that have constrained allocations.
Be the first to comment