The SEC proposed a new cryptocurrency custody framework on October 1 for investment advisers and regulated funds. The proposal would allow state trust companies to serve as custodians and provide a limited route for advisers to hold client or fund crypto themselves in specified circumstances. It addresses the gap between existing custody rules and digital assets, particularly where an appropriate permitted custodian may not yet be available for a particular holding.

The proposal’s use of self-custody refers to an adviser acting as custodian for client assets. It is different from an individual investor directly controlling a personal wallet. That distinction defines who would bear responsibility for safeguarding the holdings under the proposed rules. The SEC’s announcement opens a public comment process, with the proposal still subject to review and possible changes before any final framework becomes applicable to the businesses it covers.

For asset managers, custody arrangements influence which tokens they can hold directly and how they organize investment operations. A qualified third-party custodian supplies one model, while adviser custody places more functions within the manager’s own systems. Those functions include control of keys, authorization of transfers and reconciliation of client balances. The question is therefore broader than whether a token can be purchased: it concerns the controls supporting its continued safekeeping after acquisition.

The proposal also has implications for state trust companies competing to provide institutional digital asset services. Recognizing their role could affect the range of custody relationships available to funds and advisers. The October announcement does not approve an individual provider or remove the need to satisfy applicable requirements. Public comments and the eventual text of any final rules will determine how the proposed alternatives operate and which safeguards managers must establish when holding client cryptocurrency.