SEC Proposes First Crypto Custody Rules for Advisers and Funds

The US Securities and Exchange Commission has proposed new rules for how investment advisers and funds can hold crypto. The commissioners voted on the proposal on October 1, 2026. It is the agency’s first tailored crypto custody framework. Once published, the public will have 60 days to send comments before final rules are made.

What the rules would change

The proposal updates two old laws: the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Two parts stand out. First, state-chartered trust companies could serve as qualified custodians for client crypto. This would widen the small pool of approved custodians that exists today. Second, advisers could hold client crypto themselves in limited cases, specifically when no qualified custodian is available for that asset. The rules also update audit and recordkeeping requirements tied to custody.

Part of Project Crypto

The custody proposal is part of SEC Chair Paul Atkins’ Project Crypto. This is a commission-wide effort to modernize securities rules for blockchain markets. In August, the SEC proposed Regulation Crypto Assets, a framework with new offering exemptions for token projects. On September 1, it proposed modernizing transfer-agent rules for digital records. The direction is clear: the same agency that sued crypto companies for years is now writing rules to fit them in. But proposals are not final rules. Banks and industry groups are already pushing to change the drafts.

Why it matters

Custody has been a major roadblock for big investors. Many funds wanted to buy crypto but had no legal way to store it for clients. Clear custody rules could open the door to pension funds, endowments, and wealth managers. The proposal comes as Congress failed to pass the Clarity Act, which would have set full market rules. With legislation stalled, regulators are moving on their own. House Financial Services Chair French Hill has warned that agency rules cannot replace real laws, but for now, the SEC’s pen is moving.

Industry reaction

The proposal has drawn quick responses. Crypto companies mostly welcomed it, saying clear rules are better than lawsuits. Banks are more cautious. Some worry the rules could let lightly regulated firms hold client assets. Industry groups are preparing detailed comment letters before the deadline. The 60-day comment period means final rules are unlikely before 2027. Until then, the proposal is a signal of direction, not a finished law.

The timing matters. In September, the Senate failed to advance the Clarity Act by a 49-50 vote. That bill would have set permanent market rules for crypto. Its failure left a gap that regulators are now filling on their own. House Financial Services Chair French Hill praised the SEC’s effort but warned that agency rules cannot replace legislation. The debate over who writes crypto’s rules is far from over.