The SEC has proposed letting investment advisers hold clients’ crypto assets themselves, a move that could finally break the custody logjam that has stymied crypto investing for years. The proposal, published Thursday, would allow advisers to keep digital assets in-house when no qualified custodian exists, with serious safeguards attached.
The move comes as the agency faces mounting pressure from advisers who have struggled to find qualified custodians. It also arrives weeks after the CLARITY Act failed to advance in the Senate.
The Self-Custody Proposal
Under the new proposal, advisers could hold crypto directly, but only after proving no qualified custodian is available for each asset. They would have to reassess that status quarterly. If a custodian later becomes available, the assets must be moved out as soon as reasonably practicable.
Safeguards are extensive. Advisers would need private key protections, robust cybersecurity controls, and separation of each client’s holdings. At least two authorized individuals must approve any transfer of a self-custodied asset.
The proposal also allows state trust companies to serve as crypto custodians, provided they meet certain criteria. They must be authorized by the relevant state authority, have reasonable procedures to safeguard assets, have audited financial statements and internal control reports, and ensure client holdings are segregated from the company’s own assets.
Regulated funds could keep crypto in self-custody with their adviser if the adviser meets requirements and the fund’s board oversees the arrangement.
Why Custody Became the Problem
The crypto market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure. Unfortunately, our rules and regulations have not kept pace.”
That quote comes from Paul Atkins, SEC Chair. The problem advisers face is simple: qualified custodians are scarce, leaving funds and advisers with limited options for holding assets that clients want to invest in.
The Digital Chamber raised concerns about the lack of qualified crypto custodians in a May 2025 submission to the SEC. That submission noted some advisers had declined token allocations or asked portfolio companies to retain them until custody became available.
“Advisers have been gritting their teeth and holding on for dear life while awaiting workable custody rules.”
That line comes from Hester Peirce, SEC Commissioner, who likened the uncertainty to a regulatory “roller coaster.” Her framing captures the frustration advisers have expressed publicly for months.
What the Proposal Changes
The proposal also includes changes to audit, recordkeeping and disclosure requirements. Public comments will be accepted for 60 days after the proposal is published in the Federal Register.
The move is significant because it addresses a specific regulatory hurdle. Without a qualified custodian, advisers simply could not hold digital assets. The proposal changes that calculus by allowing self-custody under strict conditions.
The requirement that advisers prove no custodian exists for each asset and reassess quarterly is a meaningful check. It means advisers cannot simply default to self-custody everywhere — they have to demonstrate that no other option is available before they can keep the assets themselves.
The two-person approval rule for transfers adds another layer of protection. A single employee acting alone cannot move funds, which reduces the risk of fraud.
The Broader Context
The proposal follows a string of recent developments in crypto regulation. The CLARITY Act failed to advance in the Senate last month, leaving the legislative route to custody relief closed for now.
The CFTC has submitted a crypto-market proposal for White House review. The SEC has also opened a path for trading tokenized stocks.
Taken together, these moves show the SEC and CFTC are both working on crypto rules through existing authorities, even as the legislative path remains stalled.
The SEC’s proposal is a practical response to a real problem. Advisers have been caught between clients who want to invest in crypto and the difficulty of finding qualified custodians. The proposal provides a path forward, but it is not a blank check.
The conditions are demanding. Advisers will have to build systems that meet the SEC’s standards, and they will have to prove regularly that no custodian is available.
What Comes Next
The public comment period will test whether the proposal survives scrutiny. Interested parties — advisers, custodians, industry groups — will have 60 days to weigh in.
The proposal is a pragmatic response to a real problem. It allows advisers to hold crypto when no other option exists, with strict safeguards in place. That is a fair balance.
The industry has waited a long time for this moment. The SEC has finally delivered a proposal that addresses the custody gap. The outcome depends on what the public says next.
Where the paper stands
The paper backs the small advisers against the SEC’s proposal and the big crypto firms, and is against any rule that lets advisers hold client assets without clear proof that no qualified custodian exists, because such a rule would raise the cost of entry for the small adviser while protecting the interests of the largest firms. The paper supports narrow oversight aimed at actual harm, not broad new rulebooks written with the help of the biggest players.
The proposal’s safeguards are extensive — private key protections, cybersecurity controls, quarterly assessments, and two-person approvals for transfers — but the core problem remains: the largest firms wrote the rules and now get to hold client assets without the same proof the small advisers must show. That is the concentration of power the paper opposes.
The paper wants the SEC to require the same proof from everyone, not just the small adviser, and to make sure the biggest firms do not write the rules they then escape. The reader should watch for how the SEC handles the public comment period, and whether the proposal treats all advisers equally or favors the largest.
Source material: “SEC moves to clear custody hurdle for advisers offering crypto,” Cointelegraph.
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