SEC advances removal of custody barriers to consultants who provide encryption services

The U.S. Securities and Exchange Commission proposes relaxing rules on custody of crypto assets or clearing obstacles for digital asset investment

The U.S. Securities Regulatory Agency (SEC) recently proposed a proposal aimed at relaxing regulations related to investment management advisers and funds holding crypto assets. This move is expected to eliminate regulatory barriers that have long plagued the development of the industry, thereby prompting more companies to provide digital asset investment services to customers.

The proposal was announced on Thursday, and its main contents include: allowing investment management consultants to hold clients 'cryptographic assets on their behalf if certain conditions are met in the absence of qualified cryptographic asset custodians; At the same time, allowing state-level trust companies to act as custodians of cryptographic assets.

Paul Atkins, Chairman of the U.S. Securities and Exchange Commission, said in a statement: "The crypto asset market has grown from a niche to a multi-trillion-dollar mainstream asset class that investors are actively seeking to allocate. However, our current rules and regulations have failed to keep pace with market development."

Addressing the pain point of "difficulty in custody"

The proposal mainly addresses a practical obstacle in crypto investment: many investment management advisers have difficulty finding qualified custodians to hold specific tokens, which limits the range of investment options they offer their clients.

Previously, the Digital Chamber had expressed concerns about the shortage of qualified crypto custodians. In a May 2025 filing with the SEC, the organization pointed out that some advisers refused to allocate token positions because they were unable to implement custody matters, or required companies in the portfolio to temporarily retain tokens until custody conditions were ripe.

On Thursday, SEC Commissioner Hester Peirce likened the uncertainty to a "roller coaster" in the regulatory arena and said advisers had been "clenching their teeth and grasping at straws" while waiting for feasible custody rules.

Self-custody comes with strict safeguards

Under the SEC's proposal, advisers seeking to own clients 'crypto assets must demonstrate that there are no compliant custodians available for each asset and that this determination must be reevaluated quarterly. Once an available custodian appears, assets must be transferred to the custodian within the shortest reasonably practicable time.

In addition, self-custody requires strict safeguards in terms of private key management, network security, and isolation of different customer positions. Any transfer involving self-custodial crypto assets must be approved by at least two authorized persons.

SEC Commissioner Mark Uyeda pointed out that the proposal recognizes the "inherent conflicts of interest" of the consultant custody model and emphasizes that when advisers hold client crypto assets, their fiduciary duties still apply.

The proposal also stipulates that regulated funds can self-custody at their investment management advisers 'offices, provided that the advisers meet the self-custody requirements and the fund's board of directors supervises the arrangement.

Custody options for state trust companies

If through state trust companies (that is, a financial institution authorized by a U.S. state to manage assets on behalf of others), separate conditions must be met:

• Ensure that the state-level trust company has been authorized by the relevant state authority to provide crypto asset custody services;
• Have reasonable procedures to prevent loss, theft, or misappropriation of crypto assets;
• Have audited financial statements and internal control reports;
• Ensure that assets held by customers are strictly separated from the company's own assets.

The plan also proposes changes to audit, record-keeping and disclosure requirements. After the proposal is published in the Federal Register, the SEC will open a 60-day public comment period.

Background and Outlook

Last month, as the CLARITY Act failed to advance in the Senate, the SEC and the Commodity Futures Trading Commission (CFTC) stepped up efforts to use existing powers to develop clearer encryption rules. Currently, the CFTC has submitted a crypto market proposal to the White House for review, while the SEC has opened up a path for trading in tokenized stocks.