SEC Proposes Sweeping Crypto Custody Rules to Expand Investor Options

The US Securities and Exchange Commission (SEC) has proposed new rules for cryptocurrency custody, aiming to modernize regulations and provide more investor choice. The proposal, issued on October 1, seeks to remove regulatory hurdles and ensure that registered investment advisers and regulated funds can offer compliant crypto advisory and custodial services.

Under the proposed rules, self-custody will be permitted under certain conditions. Firms will need to meet strict operational safeguards, including cybersecurity protocols and asset segregation, if they choose to self-custody cryptocurrencies. They must also determine that a qualified third-party custodian is unavailable on a quarterly basis.

The SEC has also proposed allowing state-chartered trust companies to provide crypto custody services under specific conditions, expanding the service beyond traditional banks. Additionally, authorized discretionary trading will be exempt from strict custody requirements as long as client accounts remain protected.

Regulated broker-dealers will now be eligible to serve as legal crypto custodians, eliminating the initial requirement that they be part of a national securities exchange. However, these entities must maintain customer protection rules and asset segregation.

The proposal replaces an earlier 'Safeguarding Rule' proposal that was withdrawn in 2025 due to criticism of its restrictive nature. The public will have a 60-day period to comment on the new proposal before the SEC reviews and drafts revisions.