The Securities and Exchange Commission proposed rules on Thursday establishing a framework for how registered investment advisers and regulated investment companies may custody cryptocurrency assets.
The proposal, filed under number S7-2026-35, operates under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. It will open a 60-day comment period upon publication in the Federal Register.
SEC Chairman Paul Atkins stated that while the cryptocurrency market has evolved into a multi-trillion-dollar asset class, custody regulation remained outdated for current market conditions.
Addressing Regulatory Ambiguity
Investment advisers have long been required to place client assets with qualified custodians meeting stringent safekeeping requirements. The application of these qualified-custodian standards to cryptocurrency has been unclear, creating regulatory uncertainty for advisers considering crypto strategies.
The proposed rule aims to clarify this ambiguity in two key ways. Crypto assets could be held in self-custody under certain conditions, departing from the previous assumption that a third party must always hold them. Additionally, state trust companies could serve as custodians for both client and fund cryptocurrency.
The proposal also revises requirements on financial-statement audits for registered advisers and broker-dealer custodial services for regulated funds.
A Reversal from Prior Direction
This proposal represents a significant shift from the SEC's February 2023 stance. The Commission voted 4-1 to propose a rule called Safeguarding Advisory Client Assets, which would have required advisers to place all client assets with approved custodians, not just cash and securities. That rule was withdrawn in June 2025.
Commissioner Hester Peirce dissented from the 2023 proposal, arguing it widened custody requirements while limiting compliant options for advisers holding client crypto.
Recent Guidance Formalized
The new proposal formalizes recent staff guidance. In September 2025, the Division of Investment Management stated it would not recommend enforcement against advisers or funds treating certain state-chartered trust companies as banks for crypto custody, subject to disclosure and best-interest conditions.
Commissioner Caroline Crenshaw dissented from that guidance, contending it diluted investor protections and that custodianship required formal rulemaking rather than staff positions.
