SEC Unveils Updated Crypto Custody Guidelines for Investment Firms and Funds

As per the commission’s announcement, the new framework aims to eliminate custody barriers that currently hinder crypto-related investment advice. The agency indicated that it would facilitate more crypto investment strategies for regulated funds, including registered investment companies and business development companies.

SEC crypto custody proposal would enable conditional self-custody

The SEC’s proposal allows advisers to hold crypto assets for clients and funds under specific circumstances. Commissioner Hester Peirce explained that advisers must first confirm that no permitted custodian is available for the asset and reevaluate that status quarterly.

In her Oct. 1 statement, Peirce emphasized that “self-custody” pertains to an adviser holding assets on behalf of clients, as opposed to investors retaining their own assets without an intermediary.

As reported by crypto.news on Oct. 2, the conditional self-custody proposal is part of a broader framework that also addresses external custody providers. The SEC is inviting comments on these revisions instead of finalizing them as rules.

Regarding state trust company custody, Peirce stated that advisers and funds must evaluate the company’s state authorization and established safeguards prior to their appointment, and these assessments must be repeated annually. The safeguards should protect against theft, loss, misuse, and misappropriation of crypto assets and related cash.

According to the SEC’s rulemaking docket, the proposal includes adjustments to reporting and recordkeeping requirements. This initiative is filed under S7-2026-35 and has release numbers IA-7023 and IC-36353.

The public response period is set for 60 days following publication in the Federal Register. According to the SEC’s timeline, the comment period begins with the publication date of the proposal, not the date of Atkins’ X post.

Existing custody rules leave gaps for newly launched assets

Atkins pointed out that the mandatory use of approved custodians poses a practical challenge, as custody providers may take months to support newly developed crypto assets post-launch. He expressed that the proposed framework aims to resolve this delay while providing advisers and funds a compliant path for custody.

Atkins noted that certain regulations under the Investment Advisers Act of 1940 and the Investment Company Act of 1940 are outdated and were drafted in a time before the internet. These provisions were created around traditional assets and protections against loss, theft, and misuse.

“Unfortunately, our rules and regulations have not kept pace,” stated Atkins.

With increasing client demand for what he termed a multitrillion-dollar asset class, Atkins highlighted the uncertainty faced by advisers and funds regarding lawful custody arrangements, linking the revisions to evolving client needs and the limitations of custody regulations predating crypto markets.

In addition to digital assets, the SEC noted that its amendments would also update requirements related to financial statement audits for registered investment advisers as well as broker-dealer custody services for regulated funds.

Earlier reports from Aug. 26 indicated that the White House custody review was monitoring the proposal’s submission to the Office of Management and Budget on Aug. 25, following the SEC’s withdrawal of its previous safeguarding proposal in June 2025.

Tokenized securities measures preceded the custody proposal

Reflecting on previous agency actions, Atkins mentioned the December 2025 staff no-action letter concerning the Depository Trust Company’s voluntary pilot for securities tokenization as part of its wider crypto policy framework.

Following this letter, the staff developed a January 2026 framework for classifying tokenized securities. The commission subsequently issued an interpretation to clarify which crypto assets qualify as securities and the circumstances under which assets may no longer fall under investment contracts.

An Aug. 6 report regarding DTC’s tokenization service plans elaborated on the pilot’s coverage of U.S. securities. Under the three-year no-action letter, eligible assets included Russell 1000 shares, ETFs tracking major indexes, and U.S. Treasury bills, notes, and bonds.

The report indicated that DTCC is poised to launch a service in October 2026, allowing participants to create tokenized representations of eligible securities held in DTC custody, with methods for transferring those representations to approved wallets and converting between traditional and tokenized records.

Regarding transaction interfaces, Atkins mentioned that SEC staff released a statement in April addressing broker-dealer registration implications for certain interfaces used in tokenized securities transactions. In August, the commission proposed Regulation Crypto Assets, described by Atkins as an offering framework for specific investment contracts involving crypto assets.

U.S. stock-token relief necessitates equivalent shareholder rights

Among the agency’s most recent initiatives, Atkins referred to the Innovation Exemption for trading tokenized National Market System stocks.

A September 20 coverage analyzed the five-year stock-token exemption introduced by the SEC on September 17. According to this framework, qualifying tokens must possess the same rights regarding company interests, dividends, voting, and liquidation as traditional shares of the same class.

Under this relief, the SEC prohibits synthetic stock products and mandates that qualifying venues cease token trading if the underlying stock is halted on its primary listing exchange. For third-party tokens, the venues must notify the underlying issuer and wait a minimum of 30 calendar days before listing; any issuer objection halts trading.