The U.S. Securities and Exchange Commission on October 1, 2026, proposed a dedicated framework governing how registered investment advisers and regulated funds may custody crypto assets. The initiative seeks to establish compliant pathways under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, addressing longstanding uncertainty around the qualified custodian standard that had limited institutional participation in digital asset strategies.

Existing custody requirements mandate that client assets be held with qualified custodians meeting strict safekeeping standards. Application of those standards to crypto arrangements had remained ambiguous, prompting many firms to avoid offering related strategies. The new proposal aims to resolve those bottlenecks by defining specific conditions under which advisers and funds may hold crypto assets.

Self-Custody Provisions and State Trust Companies

Under the draft rules, investment advisers would be permitted to self-custody crypto assets when no appropriate qualified third-party custodian is available. Advisers pursuing this option must demonstrate necessary custody experience and maintain suitable internal controls. Arrangements would require regular reassessment as available custody options evolve. Self-custody would apply as the general approach in the absence of suitable external providers.

The proposal further authorizes certain state trust companies to serve as custodians for client and regulated fund crypto assets, provided they meet specified regulatory conditions. This expansion increases the range of institutions eligible to provide compliant digital asset custody services. In addition, records maintained on a blockchain could satisfy certain compliance obligations when they meet the standards outlined in the proposal.

Related updates would revise standards for financial statement audits of registered advisers and address broker-dealer custodial services for registered investment companies and business development companies.

Atkins stated that the proposal would deliver a clear regulatory framework for crypto custody, offering investment advisers and funds a compliant pathway that previously did not exist and replacing uncertainty created by rules designed for traditional assets.

Context of Broader Regulatory Efforts

The custody framework forms part of the Commission’s ongoing rulemaking on digital assets following the stall of the Clarity Act in the Senate the previous month. That legislation had sought to distinguish digital assets classified as securities, commodities, or payment stablecoins but did not advance. The agency had submitted its crypto custody proposal to the White House in August and proceeded with rulemaking regardless of legislative outcomes.

Earlier actions included the introduction of Regulation Crypto Assets, which established pathways for selected crypto investment contracts along with exemptions and disclosure requirements, and an innovation exemption permitting trading of tokenized stocks on-chain. Staff also clarified that token buybacks alone do not necessarily render a crypto asset a security.

The stated objective of the custody proposal is to reduce regulatory barriers for investment advisers, thereby expanding investor access to crypto strategies while aligning oversight of digital assets more closely with traditional financial products.

Next Steps in the Rulemaking Process

The proposal is not final. Publication in the Federal Register will open a 60-day public comment period during which market participants, legal experts, and financial institutions may submit input. The Commission may then revise the rules before any vote on adoption. The final scope of the regulation is expected to shape compliance obligations for professional money managers handling digital assets.