SEC proposes easing crypto custody rules for investment advisers and funds

The US Securities and Exchange Commission proposed easing crypto custody rules for investment advisers and funds on Thursday. The proposal could remove a hurdle that has prevented some advisers from offering clients certain crypto investments. Advisers could hold clients' crypto assets themselves if no permitted custodian is available for each asset. Advisers choosing self-custody would have to reassess the availability of a permitted custodian quarterly. Advisers would have to transfer the assets as soon as reasonably practicable if a custodian becomes available. Self-custody would require safeguards for private keys, cybersecurity and separation of each client's holdings. At least two authorized individuals would have to approve any transfer of a self-custodied crypto asset. Regulated funds could maintain crypto assets in self-custody with their investment adviser if the adviser meets those requirements and the fund's board oversees the arrangement. State trust companies could serve as crypto custodians if the relevant state authority authorizes them to provide crypto custody. A state trust company would need reasonable procedures to protect crypto assets from loss, theft or misappropriation, audited financial statements and internal control reports. Client holdings would have to be segregated from the state trust company's own assets. The proposal also includes changes to audit, recordkeeping and disclosure requirements. The SEC will accept public comments for 60 days after the proposal is published in the Federal Register. SEC Chair Paul Atkins said crypto has grown into a multi-trillion-dollar asset class while regulations have not kept pace. In a May 2025 submission to the SEC, the Digital Chamber said some advisers had declined token allocations or asked portfolio companies to retain them until custody became available. SEC Commissioner Hester Peirce said advisers have faced uncertainty while awaiting workable custody rules. SEC Commissioner Mark Uyeda said adviser custody creates an inherent conflict of interest and that advisers' fiduciary duties would continue to apply. The proposal follows the CLARITY Act's failure to advance in the Senate last month. The Commodity Futures Trading Commission has submitted a crypto-market proposal for White House review. The SEC has opened a path for trading tokenized stocks.