The U.S. Securities and Exchange Commission is aiming to clarify how investment firms can handle and keep customer crypto assets in a new rule proposed Thursday, marking a significant step toward integrating digital assets into mainstream financial compliance.
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," said SEC Chairman Paul Atkins in a statement.
The SEC’s new approach would clarify what kinds of companies can properly hold crypto assets and how investment advisers and regulated funds need to keep records and make federal disclosures. It would also offer new clarifications of industry practices and auditing requirements. For years, market participants have pointed to a regulatory vacuum regarding digital asset safekeeping, leaving institutional players hesitant to enter the space due to legal liabilities and ambiguous compliance expectations.
According to the extensive 760-page proposal, the SEC will allow for self-custody by advisers seeking to hold their clients’ funds under strictly limited circumstances. The agency is using the term "self-custody" as an asset management firm practice, which differs from how crypto-native companies and individual users typically use the term.
Implementing this option would first require that an adviser cannot find a qualified custodian ready to take the assets. Agency officials noted this would likely be an unusual circumstance after the rule is fully implemented. Additionally, the option requires specialized technical expertise for the investment firm to securely hold crypto assets. Furthermore, that ability to hold their own clients’ assets would have to be reviewed every single quarter to evaluate whether a traditional third-party custodian has become available, an SEC official explained.
The official granted that the circumstance for self-custody—which stems from an industry request brought forward by the agency’s Crypto Task Force—would likely remain an edge case, though it could apply to newly launched tokens that established custodians do not yet support or possess the technical infrastructure to service.
Atkins emphasized that existing custody rules "were designed to protect the assets of advisory clients and regulated funds from loss, theft, misuse, and misappropriation," but they currently consider "the custody and safekeeping only of traditional assets — an untenable situation in the 21st century."
The newly proposed rule, which has been opened for a standard 60-day public comment period to gather feedback from industry stakeholders, investors, and legal experts, would also explicitly permit the use of state-chartered trusts as qualified custodians. This provision expands the pool of eligible entities beyond traditional national banks and trust companies, potentially injecting more competition and specialized capability into the crypto custody market.
The latest move to advance a pro-crypto U.S. securities agenda arrives on the eve of the departure of Commissioner Hester Peirce, who has led the agency’s Crypto Task Force since its inception. Peirce leaves her post on Friday to assume a professorship in Virginia, leaving the agency with just two active commissioners.
To manage the potential operational hurdles of running the agency with a depleted roster, the SEC moved to reduce the number of commissioners required to form a quorum earlier this week. While the agency in the past strictly required at least three commissioners to conduct official business, the revised framework will now require only two. Under the new guidelines, if one of those two commissioners is recused or conflicted out of engaging with a specific agency action, the remaining commissioner alone can legally form a quorum to vote on and advance regulatory measures.
With the latest advancement on the crypto custody issue, the SEC has effectively checked off every major topic on the comprehensive digital asset agenda originally laid out by Atkins at the helm of the commission.
The regulatory body recently published its long-anticipated "Innovation Exemption" for tokenizing securities, laying out clear compliance pathways for companies to issue and trade traditional securities products utilizing distributed ledger technology and blockchain networks. Alongside the tokenization framework, the SEC also proposed its Regulation Crypto Asset, which explicitly explains how emerging companies and startups can successfully fundraise using digital assets and token sales without running afoul of federal securities regulations.
Together, these regulatory initiatives represent a sweeping overhaul of the federal oversight framework governing digital assets, replacing years of regulation-by-enforcement with codified standards designed to accommodate blockchain technology within traditional finance. As the public comment period begins, market participants will be closely analyzing the 760-page text to determine how the new compliance obligations will shape the future of institutional cryptocurrency investment in the United States.
