SEC Proposes New Rules Allowing Advisers to Self-Custody Client Crypto

The U.S. Securities and Exchange Commission proposed a new regulatory framework Thursday for how investment advisers and regulated funds can custody crypto assets, aiming to close a gap in rules that largely predate the internet.

The proposal would permit crypto to be held in self-custody under certain circumstances and would allow state trust companies to serve as custodians for client and fund assets. SEC Chair Paul Atkins said the agency's existing rules have not kept pace with crypto's growth from a niche curiosity into a multi-trillion-dollar asset class.

The framework targets a practical problem for institutional investors: qualified custodial infrastructure for some crypto assets doesn't yet exist. It would give asset managers and hedge funds a path to hold bitcoin and other crypto directly, rather than exclusively through an ETF or other intermediary.

Self-custody under the proposal would apply only in limited circumstances, including when an adviser determines no permitted custodian is available. SEC Commissioner Hester Peirce clarified that the term refers to advisers acting as custodians on behalf of client assets, not investors directly holding their own crypto. Peirce added that many crypto owners prize being able to custody their own assets, and argued regulators should protect that choice rather than force investors into third-party custody.