SEC Proposes New Rules Allowing Investment Funds to Self-Custody Crypto

SEC opens door for investment advisers to hold client crypto directly

The U.S. Securities and Exchange Commission proposed new rules Thursday that would allow certain investment advisers and regulated funds to hold cryptocurrency assets themselves, instead of relying exclusively on outside custodians.

The proposal represents a significant shift in how the SEC regulates the storage of digital assets by traditional financial firms. Under the new rules, advisers and funds acting through their advisers could self-custody client crypto, but only when no "permitted custodian" is available.

Custody refers to the secure storage and management of assets on behalf of clients. In crypto, this typically involves safeguarding private keys that control access to digital assets on a blockchain.

Blockchain records and state trust companies gain recognition

The proposed rules also say that records kept on a blockchain could count toward compliance, subject to certain conditions. This acknowledges that blockchain data can serve as a verifiable record of asset ownership and transactions.

Additionally, the SEC said it would allow state-chartered trust companies to act as custodians for client and regulated fund crypto assets, again subject to conditions.

Rulemaking proceeds despite Clarity Act defeat

The proposal comes after lawmakers blocked the Clarity Act last month. The legislation would have created a framework for distinguishing between digital assets that are securities, commodities, or payment stablecoins. It failed to get the votes needed to advance.

Before the vote, regulators had said they would move forward with crypto regulation regardless of whether the landmark bill passed. The SEC had already sent a proposal to the White House aiming to "clarify the framework for the custody of crypto assets."

What SEC Chair Atkins said

SEC Chairman Paul S. Atkins called the current regulatory landscape outdated. "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. Unfortunately, our rules and regulations have not kept pace," he said in a statement.

He added that the proposal would provide a "clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before — and replacing the grey of uncertainty created by custody rules crafted for a bygone era."

Atkins, described as pro-crypto, said he would work to make the U.S. the "crypto capital of the world" regardless of whether the Clarity Act passes.

Why this matters for the industry

The proposal addresses one of the biggest practical obstacles facing institutional crypto investment: the limited availability of permitted custodians. Many investment advisers have struggled to find qualified custodians for client crypto holdings, which has slowed the growth of crypto-focused investment products.

By creating a conditional pathway for self-custody and recognizing state trust companies, the SEC is effectively broadening the pool of entities that can legally hold crypto assets for funds and advisers.

What is still unclear

The proposal outlines conditions for both self-custody and the use of state trust companies, but the specific requirements and safeguards have not been detailed in the source material. The rules are still in the proposed stage and would need to go through a formal comment period and final adoption process before taking effect.

Sources

• Bitcoin Magazine
• SEC Statement
• SEC Press Release

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