On October 1, the US Securities and Exchange Commission issued a proposal modernizing cryptocurrency custody regulations. The framework targets registered investment advisers and regulated funds, aiming to remove regulatory obstacles while maintaining compliance standards for crypto advisory and custodial services.
The proposal introduces several key changes to custody arrangements.
Permitted Self-Custody and Expanded Custodian Options
Under limited circumstances, investment advisers may self-custody cryptocurrencies if they determine on a quarterly basis that no qualified third-party custodian is available. Advisers pursuing this option must implement strict operational safeguards, including cybersecurity protocols and asset segregation.
The SEC also proposes permitting state-chartered trust companies to provide crypto custody services, expanding the universe of eligible custodians beyond traditional banks. Additionally, regulated broker-dealers would be permitted to serve as legal crypto custodians, provided they maintain customer protection rules and asset segregation standards.
Trading and Compliance Measures
The proposal includes an exemption for authorized discretionary trading from strict custody requirements, contingent on continued client account protection.
SEC Chairman Paul Atkins stated that the framework will eliminate the "grey of uncertainty" that has resulted from outdated rules failing to keep pace with the evolving crypto ecosystem.
Regulatory Process and Timeline
This proposal replaces the agency's 2023 "Safeguarding Rule" proposal, which was withdrawn in 2025 after facing substantial criticism over its restrictive provisions. The current proposal has entered a 60-day public commentary period, after which the SEC will review feedback, draft revisions, and vote before releasing final guidelines. The SEC has also proposed a companion initiative called "Regulation Crypto Assets." Given the scale of these proposals, voting is not expected until at least the first half of 2027.
