SEC Proposes New Crypto Custody Rules for Investment Advisers and Funds

The regulator has issued a sweeping custody proposal that could reshape how advisers and funds hold client crypto, marking the final major policy move from outgoing Crypto Task Force chief Hester Peirce.

The U.S. Securities and Exchange Commission has unveiled a proposed rule governing how investment advisers and funds must custody digital assets, a move that comes as Commissioner Hester Peirce, the agency's inaugural Crypto Task Force leader, prepares to exit this week. The proposal aims to bring clarity to an area that has long confused both traditional finance firms entering crypto and digital-native platforms seeking regulatory compliance.

The rule would establish specific standards for advisers managing client crypto, requiring them to use qualified custodians that meet security, insurance, and operational benchmarks comparable to those applied to traditional securities. Funds holding digital assets would face parallel obligations, with stricter oversight for those allocating significant portions of portfolios to crypto.

Peirce, a longtime advocate for clearer crypto regulation, has spent her tenure pushing the SEC to define custody obligations rather than relying on enforcement actions. Her departure marks the end of an era in which the agency attempted to balance innovation with investor protection through targeted task forces. The timing of the proposal—released just days before her exit—suggests it represents her legacy effort to codify principles she has championed.

Industry reaction has been mixed. Larger registered investment advisers with existing compliance infrastructure view the rule as a welcome reduction in uncertainty, allowing them to expand crypto offerings without fear of retroactive enforcement. Smaller firms and crypto-native advisers, however, warn that qualified custody requirements could lock them out of the market if only a handful of large custodians meet the standards.

The proposal arrives amid a broader shift in how regulators treat digital asset custody. The Federal Reserve and Office of the Comptroller of the Currency have issued guidance allowing banks to custody crypto under certain conditions, but the SEC's rule would apply specifically to advisers and funds registered under the Investment Advisers Act and Investment Company Act. This creates potential overlap and tension between banking and securities regulators.

Public comments on the proposal are expected to focus on how the SEC defines 'qualified custodian' for digital assets, whether self-custody models can meet the standards, and how the rule interacts with decentralized finance protocols. The comment period will run for 60 days, with final rules potentially taking effect in late 2027 if the agency moves quickly.

For investors, the rule could mean greater protection but also higher fees as advisers pass along the cost of institutional-grade custody. Funds that currently hold crypto through less formal arrangements may need to restructure or divest positions. The proposal underscores the SEC's intent to bring crypto into the existing regulatory framework rather than creating a parallel system, a stance that continues to divide the industry even as it gains regulatory clarity.