SEC Proposes Framework Allowing Funds to Self-Custody Crypto Assets
The SEC on October 1 proposed new custody rules that would permit investment advisers and regulated funds to hold crypto assets directly under specified conditions, rather than requiring third-party custodians. The proposal opens a 60-day comment period and represents a shift in how the regulator views fund-held digital assets.
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The Proposal
The Securities and Exchange Commission on October 1 proposed a new custody framework that would allow investment advisers and certain regulated funds to hold cryptocurrency directly, dispensing with the requirement for independent third-party custodians in defined circumstances. The proposal, which is open for public comment, marks a material revision to how the SEC intends to govern digital asset custody by funds under its jurisdiction.
What Changes
The new rules would permit funds meeting specified criteria to self-custody crypto assets rather than delegating custody to a separate service provider. The proposal does not eliminate third-party custody as an option but establishes conditions under which fund operators themselves may assume custody responsibilities. The SEC framed the rules as a governance measure intended to clarify custody obligations and reduce operational friction for compliant market participants.
Next Steps
The proposal enters a 60-day public comment period. The SEC has not yet specified which asset classes or fund types will qualify for self-custody privileges, nor has it detailed the compliance or insurance requirements that self-custodying funds must meet. Industry participants are expected to submit formal comments during the window.
Why It Matters
For Traders
Fund custody rules typically precede spot ETF approvals; clarified self-custody pathways may accelerate inflows into regulated crypto products over the next quarter.
For Investors
Direct fund custody removes intermediary counterparty risk and custody fees, lowering the cost basis for professional exposure to crypto assets.
For Builders
Institutional custody infrastructure providers should expect competitive pressure as regulated funds gain the option to manage keys internally; this may reshape the custody vendor market.
This article is for information only and is not financial advice. Read the full disclaimer.
