SEC Proposes Crypto Custody Framework for Investment Advisers and Regulated Funds
The SEC proposed new rules to establish a tailored custody framework for crypto assets held by registered investment advisers and regulated funds, removing regulatory barriers and permitting self-custody and state trust company custodians under specified conditions.
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What happened
On October 1, 2026, the SEC proposed amendments to the Investment Advisers Act of 1940 and Investment Company Act of 1940 to modernize custody rules for crypto assets. The proposal permits self-custody under certain circumstances, allows state trust companies to serve as custodians, and updates financial statement audit and broker-dealer custodial service requirements. A 60-day public comment period follows Federal Register publication.
Why it matters
Crypto assets have grown into a multi-trillion-dollar market, but existing custody rules designed for traditional securities created regulatory uncertainty and inhibited adviser ability to offer crypto investment products. Clarifying the custody framework removes a material compliance barrier, enabling broader institutional participation and fund product expansion in crypto markets.
Market transmission
First-order: Investment advisers and funds gain compliant pathways to offer crypto strategies, reducing legal/operational friction and expanding addressable market. Second-order: Increased institutional capital flows into crypto assets via regulated vehicles; demand for crypto custodial services (including state trust companies) rises; regulatory clarity may reduce risk premia on crypto-exposed fund structures and adviser business models.
What to watch
Federal Register publication timing and final rule adoption timeline; comment period feedback from advisers, custodians, and industry participants; whether final rules expand or narrow self-custody and state trust company eligibility; adoption rates of crypto products by registered funds post-finalization; competitive responses from traditional custodians and crypto-native service providers.
Source:U.S. Securities and Exchange Commission
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