The U.S. Securities and Exchange Commission (SEC) has proposed new regulations updating how investment advisers and regulated funds store client digital assets, providing a compliant pathway for asset management under specific conditions.
Under SEC Chairman Paul S. Atkins, the proposed framework allows advisers and funds acting through advisers to hold client cryptocurrency directly, provided that no permitted custodian is available in the market.
Direct Holding and State Trust Guidance
The agency's proposal establishes that records maintained directly on a blockchain can satisfy regulatory compliance standards, subject to specific conditions. Additionally, the SEC confirmed that investment advisers and funds may utilize state trust companies as qualified custodians for client cryptocurrency assets under designated rules.
This regulatory update addresses growing administrative pressures in the industry, where previous SEC crypto custody proposals threatened small advisers with annual overhead.
In a formal statement released on October 1, 2026, Chairman Paul S. Atkins emphasized the necessity of modernizing custody guidance.
"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. "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."
Regulatory Push Follows Clarity Act Stalls
The SEC pressed forward with its administrative rulemaking despite Congress failing to advance the Clarity Act, which was blocked in a procedural vote last month. The defeated landmark legislation was designed to establish a legislative framework distinguishing digital assets as securities, commodities, or payment stablecoins.
Regulators had previously indicated that rulemaking would proceed regardless of whether the legislation passed. Despite the bill's procedural failure, Atkins reiterated his objective to make the United States the "crypto capital of the world." The SEC's move comes alongside wider institutional shifts, including battles over state banking powers where trade groups sued the OCC over crypto trust charters.
Key Takeaways
- Self-Custody Exception: Advisers may directly hold client crypto if no permitted custodian is accessible.
- On-Chain Compliance: Blockchain records can meet SEC record-keeping requirements under specific conditions.
- State Trust Recognition: Approves state trust companies as valid custodians for regulated funds.
- Administrative Action: Moves forward despite Congress blocking the Clarity Act last month.
Why It Matters
This proposal marks a major pivot in SEC strategy, shifting from enforcement-driven oversight to creating practical administrative pathways for institutional crypto custody. By explicitly recognizing blockchain records and state trust entities, the agency offers institutional fund managers legal certainty without waiting for broad federal legislation. If adopted, these rules will help integrate digital assets into mainstream investment portfolios while establishing clear operational boundaries for fund managers.
