SEC Proposes New Crypto Custody Rules to Expand Investor Choice

On October 1, the US Securities and Exchange Commission (SEC) issued a comprehensive regulatory proposal modernizing crypto custody. Its aim is to remove regulatory hurdles while providing transparent and compliant ways for registered investment advisers (RIAs) and regulated funds to provide crypto advisory and custodial services.

Details of the SEC proposal on crypto custodianship

Notably, the proposed rules and amendments come under the Investment Advisers Act of 1940, and the Investment Company Act of 1940.

The first rule discusses permitted self-custody, where advisers are allowed, under limited circumstances, to self-custody cryptocurrencies. Those eligible are firms that determine the unavailability of a qualified third-party custodian on a quarterly basis. Advisers also have to meet strict operational safeguards, including cybersecurity protocols and asset segregation.

Next is permitting state-chartered trust companies to provide crypto custody services, but under certain conditions. This would expand the service beyond traditional banks, which sometimes lag in the technology and regulatory freedom necessary to safeguard digital assets.

Third is a rule to exempt authorized discretionary trading from strict custody requirements, as long as client accounts remain protected.

Even more, the SEC has proposed adding regulated broker-dealers as legal crypto custodians. This eliminates the initial requirement that those entities be part of a national securities exchange. The condition for this rule is that the broker-dealers have to maintain customer protection rules, in addition to asset segregation.

According to the agency’s chairman Paul Atkins, the framework will do away with the “grey of uncertainty” resulting from outdated rules that have been outpaced by the evolving crypto ecosystem.

What next?

The latest proposal replaces 2023’s “Safeguarding Rule” proposal, which the agency withdrew in 2025 following massive criticism of its restrictive nature.

For now, the latest proposal has entered a 60-day public commentary period. Afterward, the agency will review and draft revisions, then vote before releasing the final guidelines.

Previously, the SEC announced a sister proposal dubbed “Regulation Crypto Assets”. Because of the scale of these proposals, voting is not expected until the first half of 2027 at the earliest.