SEC Proposes New Crypto Custody Framework to Modernize Investment Rules

The Securities and Exchange Commission has proposed a new regulatory framework for crypto asset custody, specifically targeting registered investment advisers and regulated funds. This move aims to eliminate long-standing regulatory ambiguity, allowing institutional players to integrate digital assets into their portfolios with greater legal certainty. For fintechs and asset managers, it represents a pivotal shift toward institutionalizing the multi-trillion-dollar crypto market.

What was announced

The Securities and Exchange Commission (SEC) has unveiled a comprehensive proposal designed to establish a tailored framework for the custody of crypto assets. These proposed rules and amendments, falling under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, are intended to modernize existing requirements that were largely written before the rise of digital assets. By addressing current industry practices, the SEC aims to provide registered investment advisers and regulated funds—including business development companies—with a compliant pathway to manage and advise on crypto-related strategies.

The proposal introduces several significant shifts in how digital assets are handled by institutional entities. Notably, it updates requirements for financial statement audits for registered investment advisers and revises broker-dealer custodial services for regulated funds. Perhaps most importantly for the fintech sector, the framework would permit crypto assets to be held in self-custody under certain circumstances. It also explicitly allows for the use of state trust companies to serve as qualified custodians for client and fund assets. This move is intended to broaden the range of investment strategies available to clients while ensuring that assets are protected under a modernized regulatory umbrella. The public now has a 60-day window to provide feedback on these measures following their publication in the Federal Register.

"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. Unfortunately, our rules and regulations have not kept pace. To that end, today’s proposal would provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before—and replacing the grey of uncertainty created by custody rules crafted for a bygone era,"

Paul S. Atkins, Chairman at the Securities and Exchange Commission.

The companies involved

The Securities and Exchange Commission (SEC) serves as the primary federal regulator of the United States securities markets. Its core mission involves protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. As an independent agency, the SEC oversees a vast array of market participants, including investment advisers, broker-dealers, and various types of investment funds. Under the leadership of Chairman Paul S. Atkins, the commission has increasingly focused on reconciling traditional securities law with the emerging digital asset landscape.

The SEC’s role in the fintech sector has become more prominent as digital assets have transitioned from experimental technologies to significant components of institutional portfolios. The agency is responsible for enforcing the Investment Advisers Act of 1940 and the Investment Company Act of 1940, both of which are central to the current proposal. By proposing these amendments, the SEC is attempting to bridge the gap between mid-20th-century legislation and 21st-century financial technology. The commission’s actions often set the tone for global regulatory standards, making its stance on crypto custody a matter of significant interest for international financial institutions and domestic fintech innovators alike.

What FF News has reported before

FF News has closely followed the SEC’s evolving stance on digital assets throughout 2026. In August, the commission took a major step by introducing SEC Unveils 'Regulation Crypto Assets' to Create Clear Pathways for Digital Asset Capital Formation, which sought to formalize how digital assets enter the capital markets. This was followed in September by the SEC Innovation Exemption: A New Era for Onchain Trading of Tokenized Stocks, a move that facilitated onchain trading for tokenized equities.

The impact of these regulatory shifts is already being felt by market participants. For instance, Archax Secures US Digital Broker-Dealer License to Expand Tokenized RWA Access highlighted how firms are positioning themselves to operate within these new frameworks. Additionally, the global push for digital market access was seen when Daba Finance Partners with Coronation to Unlock Nigerian Capital Markets Globally, demonstrating the international appetite for regulated digital capital pathways.

What this means

This proposal represents a fundamental shift in the institutional crypto landscape, moving from a period of regulation by enforcement to a structured, rule-based environment. By legitimizing state trust companies and providing a path for self-custody, the SEC is effectively removing the primary excuse for institutional hesitation: the lack of a clear "qualified custodian" for digital assets. Traditional financial institutions that have delayed building digital asset infrastructure now face significant pressure to catch up, as the competitive advantage shifts to those who can offer integrated crypto and traditional asset services. The industry must now grapple with the technical realities of meeting these modernized audit and custody standards, particularly regarding the security of private keys in a regulated environment.