The SEC proposed new rules on October 1 to govern how registered investment advisers and regulated funds can custody crypto assets, a framework intended to replace decades-old requirements that never anticipated digital assets. The proposal covers registered investment companies and business development companies, and would allow self-custody under specific conditions as well as the use of state-chartered trust companies as custodians.
Chairman Paul Atkins framed the gap the rules are meant to close.
"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," Atkins said. "Unfortunately, our rules and regulations have not kept pace. To that end, today's 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."
TODAY 🚨: The Commission proposed new rules and amendments to provide a tailored framework for the custody of crypto assets for registered investment advisers and regulated funds, i.e. registered investment companies and business development companies. pic.twitter.com/MP16NmQ6og
— U.S. Securities and Exchange Commission (@SECGov) October 1, 2026
Why the existing custody rules created a structural bottleneck
The current custody requirements under the Investment Advisers Act and Investment Company Act, both enacted in 1940, were built around a "permitted custodian" requirement designed to protect client assets from loss, theft, misuse, and misappropriation. Atkins noted these rules "contemplate the custody and safekeeping only of traditional assets," a framework he called untenable for the current market.
The specific friction point: crypto assets are often deployed to markets faster than custodians can build compliant infrastructure to hold them.
"With newly developed crypto assets, custodial capabilities may lag an asset's deployment by many months," Atkins said. "That is a substantial problem, one which today's proposal intends to solve."
This lag has had a direct, practical effect on fund managers for years. Any registered investment adviser or fund wanting exposure to a newly launched token faced a genuine compliance dilemma: no qualified custodian existed yet for that specific asset, which meant the adviser either had to avoid the opportunity entirely or operate in a legal gray area the current rules never anticipated. Permitting self-custody under defined conditions, alongside expanding the pool of eligible custodians to include state trust companies, directly targets that bottleneck rather than simply adding crypto to the existing custodian framework unchanged.
What else the proposal updates beyond crypto-specific rules
The SEC's proposal extends beyond digital assets. It also updates decades-old requirements tied to financial statement audits for registered investment advisers and broker-dealer custodial services for regulated funds, provisions the Commission said "have not been amended for decades" and needed to better reflect current industry practice.
Updating the broader custody rule alongside the crypto-specific framework, rather than issuing a narrow crypto carve-out, suggests the Commission used this proposal as an opportunity to modernize custody requirements more comprehensively. Securities custody rules that predate the internet, as Atkins described them, apply friction points to traditional asset management as well, and addressing both simultaneously reduces the risk of creating two separate, potentially conflicting compliance regimes for advisers who manage both crypto and traditional holdings.
How this fits the SEC's broader 2025-2026 crypto policy sequence
This custody proposal is the latest in a documented sequence of SEC actions stretching back to December 2025. That month, Commission staff issued a no-action letter to the Depository Trust Company regarding its voluntary securities tokenization pilot. In January 2026, staff published a statement establishing a tokenization taxonomy for the market. The Commission later issued an interpretation clarifying which crypto assets qualify as securities and when assets may cease being subject to investment contracts.
In April, staff addressed broker-dealer registration implications for user interfaces used in tokenized securities transactions. In August, the Commission proposed Regulation Crypto Assets, creating a tailored offering regime for certain investment contracts involving crypto assets. Most recently, the SEC introduced its Innovation Exemption in September, a temporary framework permitting limited trading of tokenized NMS stock through permissioned AMM liquidity pools, a development covered extensively given its direct implications for exchanges and tokenization platforms.
Atkins described the custody proposal as one piece of that broader arc rather than a standalone initiative.
"These efforts acknowledge that blockchain technology holds the potential to modernize the financial system, and that onchain markets should not be relegated offshore or forced into ill-fitting regulatory models," he said. "That said, our work is not finished. More regulatory proposals are on the horizon, and I look forward to continuing to help President Trump cement the United States as the crypto capital of the world."
What happens next in the rulemaking process
The public comment period remains open for 60 days following publication of the SEC's proposing release in the Federal Register. That window gives investment advisers, fund managers, custodians, and other market participants an opportunity to weigh in on the proposed conditions for self-custody and the expanded custodian eligibility criteria before the rule moves toward finalization.
The SEC's own announcement noted the proposal would "expand investor choice by removing regulatory barriers that inhibit the adviser's ability to provide crypto-related investment advice," language that signals the Commission views current custody uncertainty as an active constraint on adviser behavior rather than a passive gap in the rulebook.
Roman Zaika
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