The agency's new proposal seeks to modernize how registered advisers and funds hold digital assets, arriving as the Clarity Act remains stalled in Congress.
The Securities and Exchange Commission has put forward a proposal to revise custody rules covering how registered investment advisers and funds hold cryptocurrency on behalf of clients. The proposal aims to modernize existing frameworks that were largely written before digital assets became a mainstream part of institutional portfolios.
Custody has long been one of the thorniest questions in crypto regulation. Traditional securities law requires advisers to place client assets with a qualified custodian, typically a bank or broker-dealer. Digital assets do not fit neatly into that structure, since many crypto custodians operate outside conventional banking and brokerage frameworks.
Reports describe the new proposal as taking a different regulatory approach than earlier SEC efforts. The agency previously floated an expanded custody rule in 2023 that would have swept crypto assets more broadly under existing qualified-custodian requirements. That earlier attempt drew pushback from industry participants and never advanced to a final rule.
The timing of the new proposal is notable. It arrives while the Clarity Act, a piece of market-structure legislation meant to clarify jurisdiction between the SEC and the Commodity Futures Trading Commission, remains stalled in Congress. With lawmakers unable to finish comprehensive legislation, the SEC appears to be moving on custody through its own rulemaking process rather than waiting for statutory guidance.
Custody rules matter because they determine which firms can legally safeguard client crypto holdings and under what conditions. Clear rules could open the door for more registered advisers to offer crypto exposure to clients through regulated vehicles. Unclear or overly restrictive rules, by contrast, have been cited by industry participants as a barrier to broader adoption by traditional asset managers.
The proposal covers both advisers, who manage assets on behalf of individual and institutional clients, and funds, which pool investor capital into a single vehicle. Both categories face separate but related custody obligations under existing securities law. Applying a modernized standard to both groups would mark a significant shift in how the SEC treats digital assets across the investment management industry.
As with any SEC rule proposal, the process now moves into a public comment period before any final rule can take effect. Industry groups, custodians, and adviser associations are expected to weigh in on the specifics of the plan.
Market Impact
A modernized custody framework could make it easier for registered investment advisers to offer crypto products through regulated channels, potentially expanding the pool of capital that flows into digital assets through traditional financial intermediaries. Custody providers and qualified custodians serving the crypto industry may see increased demand if the rules broaden the set of eligible arrangements.
The proposal's arrival alongside a stalled Clarity Act underscores a broader pattern in U.S. crypto policy, where regulatory agencies are acting incrementally through rulemaking even as comprehensive legislation remains unresolved. Market participants may continue to face a patchwork of guidance until Congress passes broader market-structure legislation.
The SEC's proposal signals continued regulatory attention to crypto custody even as legislative efforts stall. The rulemaking process will determine how quickly, and how broadly, any changes reach advisers and funds holding digital assets.
Frequently Asked Questions
What does the SEC's custody proposal cover?
It addresses how registered investment advisers and funds hold and safeguard crypto assets on behalf of clients, updating rules that predate widespread digital asset adoption.
Why does the Clarity Act's stalled status matter here?
The Clarity Act is meant to clarify jurisdiction over crypto markets between the SEC and CFTC. With it stalled in Congress, the SEC appears to be advancing custody rules on its own through rulemaking.
Has the SEC tried to update custody rules before?
Yes. The agency proposed an expanded custody rule in 2023 that would have applied qualified-custodian requirements more broadly to crypto assets, but that proposal did not advance to a final rule.
What happens next in the rulemaking process?
The proposal will move into a public comment period, where industry groups, custodians, and adviser associations can respond before any final rule is adopted.
Originally reported by AltcoinGordon, written by Amelia Brooks. Republished with permission.
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