SEC Chair Atkins Targets Crypto Custody Gap With New Framework
SEC Chair Paul Atkins is backing a new crypto custody framework designed to give investment advisers and regulated funds a compliant route when traditional custodians cannot support a digital asset.
Summary:
- Atkins says current custody rules do not fit crypto markets.
- Advisers could self-custody when permitted custodians are unavailable.
- That decision would need quarterly reassessment.
- State trust companies could gain a formal custody role.
The Oct. 1 proposal would amend custody rules under the Investment Advisers Act of 1940 and Investment Company Act of 1940, alongside related recordkeeping and disclosure requirements. The SEC filed the proposal as IA-7023 and IC-36353, File No. S7-2026-35.
Atkins argues that existing rules have failed to keep pace with a crypto market that has developed faster than institutional custody infrastructure. His proposed solution combines traditional third-party custody with two additional routes: eligible state trust companies and conditional adviser self-custody.
Self-Custody Becomes a Backstop When Custodians Are Missing
The proposal addresses a practical problem for asset managers. Traditional custodians may not support newer crypto assets, leaving an adviser without a compliant custody option even when clients seek exposure.
Commissioner Hester Peirce said few traditional custodians currently offer robust services across a substantial range of crypto assets. Under the proposal, an adviser could therefore hold client or regulated fund crypto directly when no permitted custodian is available.
There is an important distinction in the terminology. SEC “self-custody” does not mean an investor keeping personal private keys. It refers to the investment adviser acting as custodian for client assets.
The option would also function as a backstop rather than a permanent exemption. Before taking custody, the adviser would need to determine that no permitted custodian is available and reassess that conclusion quarterly.
That creates paperwork as well as flexibility. If an appropriate external custodian later begins supporting the asset, the original basis for keeping custody inside the advisory firm may no longer apply.
What the Proposal Means for RIA Compliance Teams
Moving custody inside an advisory firm also moves operational responsibility with it.
Commissioner Mark Uyeda noted that adviser self-custody creates an inherent conflict because the same organization responsible for investment decisions would also control client assets. The proposal therefore pairs the option with safeguards rather than treating lack of an external custodian as sufficient by itself.
For registered investment advisers, the practical workload could include:
- Documenting custodian availability: Firms would need a defensible basis for concluding that no permitted custodian can maintain the asset.
- Quarterly reassessment: The custody market would need to be checked again rather than relying indefinitely on the original determination.
- Internal safeguarding controls: Direct control of crypto introduces responsibility for preventing theft, misuse and unauthorized transfers.
- Compliance records: The SEC is proposing related recordkeeping and disclosure amendments, increasing the documentation surrounding custody decisions.
For smaller RIAs, that creates an economic calculation. Self-custody may make an otherwise inaccessible strategy possible, but building the required controls could cost more than waiting for a specialist custodian to add support.
The proposal also does not make every token eligible for an adviser or fund. The Advisers Act amendments would apply to crypto assets that are funds or securities, while the Investment Company Act provisions cover crypto assets that are securities or similar investments. Other fiduciary, valuation and portfolio requirements remain separate.
State Trust Companies Get Another Route Into Institutional Custody
The SEC is also proposing to recognize qualifying state trust companies as permitted crypto custodians.
Before using one, an adviser or regulated fund would need a reasonable basis for believing the company is authorized by its state banking regulator to provide crypto custody and maintains written policies designed to protect assets and related cash from theft, loss, misuse and misappropriation. That assessment would be required before engagement and annually afterward. SEC
The provision could increase competition without automatically qualifying every state-chartered crypto company.
It also gives conventional custodians another competitive incentive. If advisers can use eligible state trusts or, in limited cases, hold unsupported assets themselves, established providers have more reason to expand token coverage and reduce the period between an asset’s launch and institutional custody support.
Atkins Reverses the SEC’s 2023 Custody Direction
The proposal marks a notable change from the SEC’s previous attempt to rewrite adviser custody rules.
The Commission’s 2023 proposal would have pushed crypto toward qualified custodians while questioning whether those custodians could demonstrate the necessary control over digital assets. Uyeda said the combination created a “no-win” situation in which advisers were directed toward custody providers that could be unavailable or unwilling to serve them.
The new approach keeps segregation and safeguarding as core principles but changes how they can be implemented for assets recorded on distributed ledgers.
Atkins is positioning custody as one component of a wider crypto regulatory program. He pointed to recent SEC work covering tokenized securities, crypto asset classification, broker-dealer interfaces and Regulation Crypto Assets, while saying further proposals are still planned.
The custody proposal is not yet effective. Public comments on S7-2026-35 are due 60 days after publication in the Federal Register, giving advisers, funds, custodians and other market participants an opportunity to challenge or refine the operational requirements before the Commission considers a final rule.
The information presented in this article is intended for informational purposes only and should not be interpreted as financial, investment, or trading advice. Coinspress.com does not promote or advocate for any particular investment strategy, asset, or cryptocurrency project. Cryptocurrency markets are highly volatile and unpredictable – always perform your own research and seek guidance from a qualified financial professional before making any investment decisions.
Alexander Zdravkov
Reporter at CoinsPress
Alexander Zdravkov is a market analyst and crypto journalist with interests in economics, broader financial markets and digital assets. His journey into crypto began more than four years ago, driven by a fascination with the rapid evolution of blockchain technology and the transformative potential of decentralized finance. He began analyzing market cycles and identifying emerging trends before they reach the mainstream. He holds a degree in International Relations - a background that helped shape his broader perspective on global economics, geopolitics, and the interconnected nature of modern financial markets. Whether covering the latest developments in the crypto sector or exploring broader macroeconomic themes, Alexander focuses on giving readers context rather than simply repeating headlines. During his career, he has authored more than 10,000 articles covering cryptocurrencies, traditional finance, and global market developments. His work spans everything from Bitcoin and altcoins to macroeconomic trends influencing risk assets worldwide.
