SEC Proposes New Custody Rules for Crypto Assets

SEC Chairman Paul Atkins noted that existing custody regulations, rooted in the Investment Advisers Act of 1940, were designed for traditional assets and often fail to accommodate the rapid emergence of new digital tokens. The proposal aims to resolve uncertainty for firms struggling to find permitted custodians for newly launched assets. Under the plan, advisers could hold client crypto themselves provided they verify that no third-party custodian is available, a determination that must be reassessed quarterly.

For state trust companies acting as custodians, the SEC requires advisers to conduct annual reviews of the firm’s authorization and security measures. These safeguards must specifically address risks of theft, loss, and misappropriation. Commissioner Hester Peirce emphasized that this self-custody arrangement is distinct from individual investors managing their own private keys. The agency has opened the proposal, filed under S7-2026-35, for a 60-day public comment period. This initiative follows a series of recent regulatory efforts, including the September introduction of the Innovation Exemption for tokenized National Market System stocks and previous guidance on tokenized securities.