SEC proposes draft crypto custody rules for investment advisers and funds

The SEC proposed a tailored crypto custody framework for registered advisers and regulated funds on October 1. The proposal aims to modernise rules for safeguarding digital assets. It is not final and does not authorise all fund structures or decide which institutions qualify as custodians.

Scope and intent

The SEC states the changes are designed to reduce obstacles that prevent advisers from offering certain crypto strategies while maintaining investor protections. The proposal outlines a path to integrate digital assets into regulated products without pre-approving specific custody models.

Operational requirements for managers

Managers must address wallet technology and core fiduciary controls: establish demonstrable control, segregate client assets, manage lost or compromised keys, value holdings, and meet external oversight requirements. These functions differ from holding conventional securities, even when portfolios are presented together in client interfaces.

Industry impact

A final regime aligned with operational realities could streamline distribution of crypto investments through existing fund and advisory channels. Misaligned custody requirements could increase costs or narrow the set of supported assets. The central issue for firms is the operational demands of the final rules, not treating the proposal as immediate permission.