The Securities and Exchange Commission (SEC) is tackling a question that has long complicated institutional crypto investing: how registered investment advisers and regulated funds should be allowed to hold digital assets. On Wednesday, the agency proposed a tailored framework intended to replace years of regulatory ambiguity with a defined compliance path.
Under current rules, advisers must keep client assets with “qualified custodians” that meet strict safekeeping standards. The trouble is that it has never been entirely clear which crypto arrangements actually meet that bar, and that uncertainty has kept many firms from offering digital-asset strategies at all.
The new proposal, issued under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, attempts to loosen that bottleneck in several ways.
It would allow crypto assets to be held in self-custody under specific conditions, open the door for state trust companies to act as custodians for client and fund crypto, and revise rules covering financial-statement audits for advisers as well as broker-dealer custodial services for funds. The agency’s broader aim is to expand investor access to crypto strategies by clearing away barriers that have kept advisers from participating.
SEC Chairman Paul Atkins said, “Since the advent of Bitcoin in 2008, the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure,” he said, adding that the agency’s rules “have not kept pace” and that the proposal would replace “the grey of uncertainty created by custody rules crafted for a bygone era.”
This custody plan is only the latest piece of a larger regulatory push the SEC has undertaken since the Clarity Act stalled in the Senate. The agency has already introduced an “innovation exemption” allowing tokenized stocks to trade on-chain, proposed a crypto-fundraising framework known as Regulation Crypto Assets, and had staff clarify that token buybacks alone do not turn a crypto asset into a security.
Once the proposal is published in the Federal Register, a 60-day public comment period will open, giving the agency room to revise the rules before any vote to adopt them.
The most notable shift in the proposal is the option for an adviser to hold a client’s crypto itself, something not permitted under the conventional custody model built around exchanges or specialist wallet providers.
This path would only be available under narrow circumstances. Before taking custody, an adviser must first determine that no permitted custodian is available for the asset in question, and according to Commissioner Hester Peirce’s statement on the proposal, that determination must be repeated every quarter.
Peirce pushed back on how the arrangement is described. She said the proposal’s use of the term “self-custody” does not mean investors would control their own assets, and said she preferred the term “shelf-custody,” since the adviser would still be the one holding the crypto, just outside the structure of a permitted custodian.
The arrangement is meant to function as a fallback, not a general substitute for third-party custody. It may prove most useful when a newly launched asset reaches the market before traditional custodians are equipped to support it. Advisers relying on this option would also need to demonstrate they have the technical expertise to safeguard the specific asset involved, with requirements covering private-key management, joint authorisation by at least two people, and keeping each client’s crypto segregated in blockchain addresses that hold only that client’s holdings.
The setup also raises an inherent conflict of interest. An adviser permitted to hold a client’s crypto directly would simultaneously be responsible for safeguarding those assets while still owing the client a fiduciary duty, combining two roles that are typically kept separate under the existing custody system.
