SEC Proposes Crypto Custody Framework for Advisers and Funds

The U.S. Securities and Exchange Commission (SEC) has proposed a tailored custody framework for investment advisers and registered funds that handle crypto assets. The proposal was published in the Federal Register on October 1, initiating a 60-day public comment period.

The rulemaking falls under the Investment Advisers Act and the Investment Company Act. It specifically addresses the custody of crypto assets while modifying existing requirements related to adviser audits and broker-dealer custodial services. The agency stated that the proposed approach could permit self-custody in specified circumstances and allow the use of state trust companies as custodians.

Proposed Custody Modifications

The core of the proposal involves shifting how regulated entities manage digital assets. Currently, the framework for custody is often tied to traditional broker-dealer services. The SEC’s draft rule seeks to adapt these requirements to the specific nature of crypto assets.

According to the announcement, the SEC says the approach could permit self-custody in specified circumstances. This would allow certain advisers and funds to hold private keys directly, rather than relying exclusively on third-party custodians. Additionally, the proposal would recognize state trust companies as eligible custodians, providing an alternative to traditional bank custodians.

The proposal also modifies requirements involving adviser audits. These changes are designed to ensure that advisers can demonstrate control, segregation, and responsibility for the digital assets they manage. The SEC noted that the specific details and final scope of these audit modifications may change after public feedback.

Public Comment and Finalization

The SEC set a public comment period of 60 days following the publication of the proposal in the Federal Register. The changes have not been finalized and are currently in the proposal stage. The agency emphasized that this is not a currently effective blanket permission for every registered fund or adviser to self-custody assets.

Regulated access under the proposed framework is not an investment recommendation. The SEC noted that even services supervised by a public agency can face market risk, operational failures, changing prices, or limitations on protections available to holders. The proposal is part of a wider shift toward fund custody regulations, aiming to provide clearer guidelines for institutions managing digital assets.

The final rulemaking timetable and how custodians adapt their service models will depend on the outcome of the public comment period. The SEC will review submissions before determining the final scope of the rule. Until the rule is finalized, existing custody requirements remain in effect for investment advisers and registered funds.