The U.S. Securities and Exchange Commission on Thursday proposed a tailored custody framework for crypto assets held by registered investment advisers and regulated funds, including registered investment companies and business development companies.

The amendments target the Investment Advisers Act of 1940 and the Investment Company Act of 1940, updating requirements that cover financial statement audits for RIAs and broker-dealer custodial services for regulated funds. The agency said the proposal would eliminate barriers that currently restrain advisers from providing crypto-related investment advice and would allow regulated funds to offer clients a wider range of crypto-asset-related strategies.

SEC Chairman Paul Atkins framed the move as a modernization exercise. Crypto has grown into a multi-trillion-dollar asset class since Bitcoin launched in 2008, he noted, and the existing custody rules predate that industry entirely.

"Today's proposal would provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before — and replacing the grey of uncertainty created by custody rules crafted for a bygone era," Atkins said in a statement.

What does the proposal permit?

Two operational changes stand out in the framework. The SEC would allow crypto assets to be held in self-custody under certain circumstances — a notable departure from the qualified-custodian model advisers have relied on for traditional securities. The proposal would also permit state trust companies to serve as custodians for client and regulated fund crypto assets, widening the universe of eligible custodians beyond national banks and federally chartered trust institutions.

For RIAs, the practical consequence is an expanded mandate. Advisers who have avoided crypto exposure because custody arrangements could not satisfy the custody rule would gain a defined, compliant path. For regulated funds, including BDCs, the changes open the door to product structures and strategies that previously carried regulatory risk on the custody leg alone.

Why amend the 1940 statutes?

The existing rules were written for a market where custodians held bearer securities and audited financial statements followed conventional processes. Digital assets break that model: private keys, on-chain settlement and 24-hour markets do not map cleanly onto requirements drafted more than eight decades ago. Atkins said the proposal is intended to bring regulation up to date with the industry's development rather than leave advisers navigating rules built for a different asset class.

The proposal now enters the commission's public comment process. Market participants — custodians, state trust companies, advisers and fund complexes — will weigh in before the SEC can adopt final rules, leaving advisers and funds to watch the comment window and any subsequent adoption timeline before restructuring custody arrangements.