SEC Proposes Crypto Custody Framework for Investment Advisers and Funds

The U.S. Securities and Exchange Commission published a proposed rule on Thursday setting out how investment advisers and regulated funds must handle and safeguard client crypto assets, adding another significant element to the agency’s digital asset regulatory programme. The 760-page proposal would clarify which types of firms qualify as custodians for crypto, establish record-keeping and federal disclosure requirements, and permit state-chartered trusts to serve in a custodial capacity.

A limited self-custody provision is included for circumstances where an adviser cannot locate a qualified custodian willing to accept particular assets, a scenario that SEC officials acknowledged would likely be uncommon once the rule is in force but could apply to newly launched tokens without existing custodian support. Any adviser relying on this provision would need to demonstrate relevant expertise and revisit the position quarterly to determine whether a qualified custodian has since become available.

SEC Chairman Paul Atkins described the proposal as replacing regulatory uncertainty inherited from rules built for traditional assets, framing the rulemaking as creating a compliant pathway that did not previously exist for advisers and funds. The proposal opens a 60-day public comment period. Its publication coincides with the departure of Commissioner Hester Peirce, who led the agency’s Crypto Task Force from its inception and exits on Friday to take up a professorship in Virginia, leaving the SEC with two commissioners. The agency reduced its quorum requirement to two commissioners earlier this week, with provision for a single commissioner to act if the other is conflicted out of a matter.