New Framework Proposed for Digital Asset Custody

The U.S. Securities and Exchange Commission has introduced a proposed framework designed to clarify how professional money managers handle digital assets. Released on Wednesday, the guidelines establish compliance pathways for registered investment advisers and regulated funds, aiming to replace years of ambiguity regarding institutional safekeeping.

Under existing regulations, investment advisers must hold client assets with "qualified custodians" that meet strict safety standards. However, it has remained unclear how these mandates apply to digital assets, leaving many financial firms hesitant to offer related investment strategies. The newly proposed guidelines, issued under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, seek to remove these bottlenecks and broaden investor access to the market.

Expanding Custody Options

The framework offers specific pathways to ease custody limitations. According to the proposed rules, advisers and funds acting through them would be permitted to hold client digital assets in self-custody, provided that no permitted custodian is available. Additionally, state trust companies would be explicitly allowed to serve as custodians for client and regulated fund holdings, subject to certain conditions.

In a nod to the underlying technology, the regulator noted that records maintained on a blockchain could count toward compliance requirements. The proposal also includes updates to regulations governing financial-statement audits for advisers and broker-dealer custodial services for funds.

SEC Chairman Paul S. Atkins noted that regulations have fallen behind the industry's rapid expansion.

“Since the advent of Bitcoin in 2008, the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure,” Atkins said in a statement. He added that the new framework aims to give money managers a compliant pathway, “replacing the grey of uncertainty created by custody rules crafted for a bygone era.”

Moving Past the Clarity Act

This custody plan is part of a sweeping regulatory build-out launched after lawmakers blocked the Clarity Act in a procedural vote last month. That legislation would have established a framework distinguishing between digital assets operating as securities, commodities, or payment stablecoins, but failed to secure the necessary votes.

Prior to that legislative vote, regulators signaled they would proceed with industry rules regardless of the outcome, even sending a proposal regarding asset custody to the White House. The current agency initiatives reflect a shift toward regulatory action as legislation stalls. Recent moves include an "innovation exemption" allowing on-chain trading for tokenized stocks, a new fundraising framework dubbed Regulation Crypto Assets, and staff clarifications regarding token buybacks.

Atkins has stated his intention to make the U.S. the "crypto capital of the world" despite the legislative roadblock.

The custody proposal is not yet final. Upon publication in the Federal Register, a 60-day public comment period will open. The agency can then revise the framework before holding a vote on its formal adoption.