SEC Unveils Proposed Custody Framework for Crypto Held by Advisers and Registered Funds

The U.S. Securities and Exchange Commission on Oct. 2 released a proposal to modernize how investment advisers and regulated funds custody crypto assets, outlining a "compliance pathway" for holding digital assets under rules that were largely written before the internet era. SEC Chairman Paul Atkins said the market has transformed since Bitcoin's 2008 debut, growing from a niche product into a multi-trillion-dollar asset class with rising investor demand, while U.S. regulations have not kept pace. A central focus of the proposal is the limited availability of qualified custodial infrastructure for certain crypto assets, a constraint that has been a persistent hurdle for institutional investors. The SEC's framework would allow advisers, in narrowly defined situations, to custody clients' and regulated funds' crypto assets themselves, including when the adviser determines that no qualified custodian is available. The proposal would also permit state-chartered trust companies to provide custody services for clients' and regulated funds' crypto assets. That change could be particularly relevant for asset managers, hedge funds, and other institutions seeking direct ownership of Bitcoin and other crypto assets rather than gaining exposure through ETFs or other intermediaries. SEC Commissioner Hester Peirce emphasized that the term "selfcustody" in the proposal refers to an investment adviser serving as custodian of client assets, not to investors personally controlling their own crypto holdings.