The SEC on October 1 issued a formal proposal governing how registered investment advisers and regulated funds may custody crypto assets, moving unilaterally while Congress remains deadlocked over broader market-structure legislation. The proposing release, numbered IA-7023 and IC-36353, rests on the Investment Advisers Act of 1940 and the Investment Company Act of 1940 — statutes the agency can use without new congressional authorization.

The proposal does not create a new crypto market structure. It offers a narrower, workable custody path for advisers and funds while the Clarity Act, which would divide oversight between the SEC and the CFTC, remains blocked in the Senate.

What does the proposal actually allow?

Under the framework described by Commissioner Hester Peirce, advisers seeking to self-custody would have to determine — before taking custody, and then every quarter — that no permitted custodian is available. The proposal would also permit state trust companies to act as custodians.

Self-custody would carry obligations rather than a free hand. The SEC outlines:

• cybersecurity protections;
• annual reviews;
• internal reporting;
• account statements;
• disclosures to clients.

The public comment period runs for 60 days from Federal Register publication. The release is a proposal, not a final rule.

Why did custody become the bottleneck?

Existing rules depend on qualified custodians, and the SEC's proposing release notes that few traditional providers offer robust custody services across a substantial range of crypto assets. That scarcity left advisers and regulated funds with limited options for an asset class their clients increasingly want exposure to.

Chair Paul Atkins framed the proposal as closing that gap and said it could give regulated funds more scope to offer crypto-related investment strategies. Atkins has tied the custody work to earlier SEC action on tokenization, broker-dealer registration and a proposed offering regime for certain crypto investment contracts. He said more proposals are coming.

The scope is narrower than some market commentary suggests. The custody amendments would generally apply only to crypto assets that qualify as funds or securities, or as securities or similar investments held by regulated funds. Most non-security tokens would sit outside the amendments. The proposal settles no token's broader legal status.

What is stuck in the Senate?

The Clarity Act was designed to set the wider US framework: split SEC-CFTC oversight, registration requirements and stronger anti-money laundering protections. On September 15, the Senate voted 50-49 against advancing the bill, short of the 60 votes needed to clear the procedural hurdle.

A revised version added ethics restrictions involving public officials. It did not secure enough support. The disagreement centered in part on ethics concerns over crypto profits by President Donald Trump and his family — concerns that Sen. Ruben Gallego, a leading Democratic negotiator, said remained unresolved.

The market registered the failure. Bitcoin fell roughly 3% on the day of the vote, while Coinbase shares dropped 8% and Circle dropped 10%.

What changes for funds and enforcement?

The immediate operational effect falls on regulated entities that hold or advise on crypto assets. Their choice set widens: a qualified custodian, a state trust company, or limited self-custody subject to quarterly re-determination. That could expand legal options for regulated funds and intensify competition among custody providers, though the SEC guarantees neither lower fees nor any particular market outcome.

The proposal does not settle which tokens exchanges may list, and it leaves the SEC's enforcement authority intact. The unresolved question — how securities and commodities rules should overlap — stays with Congress.

The procedural signal is the clearest one. The SEC has opened a 60-day consultation on custody, and the bill that would have mapped the wider US crypto market has not cleared its first Senate vote.