SEC moves to clear custody hurdle for advisers offering crypto

The SEC has unveiled a proposal to relax certain custody rules for crypto held by investment advisers and regulated funds, aiming to address a practical obstacle that has limited product offerings. Under the proposal, advisers would be allowed to maintain custody of clients’ crypto for a given asset only after demonstrating that no qualifying custodian is available, and they would need to revisit that finding every quarter. If a custodian becomes available, the adviser would be required to transfer the assets as soon as reasonably practicable. Self-custody would be permitted only with a set of controls designed to protect client assets. These include safeguards for private keys and cybersecurity, segregation of each client’s holdings from others and the adviser’s own assets, and operational checks such as requiring at least two authorized individuals to approve any transfer of a self-custodied asset. The SEC emphasized that advisers’ fiduciary duties continue to apply and that the arrangement raises inherent conflicts of interest, a point noted by Commissioner Mark Uyeda. The rulemaking would also open the door for state trust companies to serve as crypto custodians, subject to conditions. A state trust company must be properly authorized by the relevant state regulator, maintain procedures to prevent loss, theft or misappropriation, keep audited financial statements and internal control reports, and ensure client holdings are segregated from its own assets. Beyond custody mechanics, the proposal includes adjustments to audit, recordkeeping and disclosure requirements and will be open for public comment for 60 days after its Federal Register publication. The move follows industry concerns, documented by the Digital Chamber in a May 2025 submission that some advisers had declined token allocations or kept assets with portfolio companies while awaiting custody solutions. It also fits into broader US regulatory activity on crypto: the SEC and CFTC have separately advanced proposals after the CLARITY Act failed to progress in the Senate last month.