The U.S. Securities and Exchange Commission (SEC) proposed an encrypted asset custody framework on October 1st, intending to allow investment advisors and regulated funds to conduct self-custody under certain conditions in accordance with two federal investment laws, and to permit state trust companies to provide custody services as well.

• This proposal applies to registered investment advisors, registered investment companies, and business development companies.
• In the absence of an approved custodian being available, investment advisors may hold crypto assets on their own when certain conditions are met.
• Before serving as a custodian, the state trust company will face a review of its statutory authorities and safeguard measures.
• The public comment period will last for 60 days after the proposal is published in the Federal Register.

Chairman Paul Atkins ( Paul Atkins ) stated in a statement published on platform X on October 3 that the proposal aims to address the uncertainties faced by investment advisors and funds regarding how to legally hold crypto assets for clients. SEC also issued the same statement on October 1 and simultaneously announced the proposed rules.

According to the SEC announcement, this framework will remove the barriers to hosting that restrict investment advice related to cryptocurrencies. The institution stated that the proposal will also enable regulated funds to offer a wider range of cryptocurrency investment strategies, including those for registered investment companies and business development companies.

SEC The encrypted hosting proposal will allow conditional self-hosting.

According to the proposal SEC, investment advisors may hold the encrypted assets of clients and funds in limited circumstances. Committee member Hester Pierce (Hester Peirce) explained that advisors must first determine that there is no available approved custodian for a particular asset, and this assessment must be repeated quarterly.

In a statement on October 1st, Pierce stated that “self-custody (self-managed)” refers to investment advisors holding assets on behalf of clients. She distinguished this arrangement from investors who keep their assets in their own hands without the use of intermediaries.

As reported by crypto.news on October 2nd, this conditional self-hosting proposal is part of a larger framework that also involves external hosting service providers. SEC is currently seeking public feedback on these modifications, rather than adopting them as final rules.

Regarding the custody by state trust companies, Pierce stated that before investment advisors and funds designate them as custodians, they must assess the company's state-level authorization and written safeguards, and these checks must be repeated annually. According to her statement, these safeguards must cover risks such as theft, loss, misuse, and misappropriation of crypto assets and related cash.

According to the SEC rule, a case file was established, and the proposal also included modifications to the requirements for report and record keeping. The institution published this proposal with the file number S7-2026-35, which corresponds to publication numbers IA-7023 and IC-36353.

The case files indicate that the public feedback period is 60 days after the publication in the Federal Register. Therefore, according to the schedule outlined in SEC, the comment solicitation period starts from the official publication date of the proposal, and not from the day Atkins posted on platform X.

The existing hosting rules leave space for newly launched assets.

Atkins stated that the requirement to use only approved custodians poses a problem in practice: when a newly developed crypto asset is launched, custodian service providers may not be able to support that asset for several months. He said that the proposed framework will address this delay issue and provide a compliant custody path for investment advisors and funds.

The chairman stated that some of the rules under the '1940 Investment Advisors Act' and the '1940 Investment Companies Act' were established before the advent of the Internet. According to his statement, these provisions were designed around traditional assets and protection mechanisms to prevent loss, theft, and misuse.

"Unfortunately, our rules and regulations have not kept up with the pace," Atkins said.

Atkins stated that as clients seek access to what he referred to as an "trillions of dollars in size" asset class, the existing framework has left investment advisors and funds uncertain about what types of custody arrangements are legal. In his statement, he linked these revisions to client needs, as well as the limitations of the custody rules established before the emergence of the crypto market.

In addition to digital assets, SEC indicates that its amendments will also update the requirements related to the audit of financial statements for registered investment advisors, as well as the custodian services for regulated fund brokers and dealers.

In an earlier report released on August 26, the White House's Ombudsman Review recorded the progress of the proposal submitted to the Office of Management and Budget (OMB) on August 25. The report described it as an independent rule-making effort that occurred after the OMB retracted its previous proposals ( safeguarding and proposal ) in June 2025.

Tokenization of securities measures precede the introduction of custody proposals.

Reviewing the institution's previous actions, Atkins mentioned that in December 2025, the issuance of a letter stating no law enforcement action would be taken regarding the voluntary securities tokenization pilots by American depositary trust companies (Depository Trust Company, DTC) was part of their crypto policy plan.

According to his statement, the staff subsequently released a tokenized securities classification framework in January 2026. Afterwards, the committee issued an explanation outlining which crypto assets are considered securities and under what circumstances these assets may no longer be subject to the constraints of investment contracts.

On August 6th, a report regarding the tokenization service plan for DTC provided a detailed overview of the range of U.S. securities covered by this pilot program. According to this three-year letter of non-enforcement, eligible assets include Russell 1000 index constituents, ETF that tracks major indices, as well as U.S. Treasury bills, notes, and bonds.

According to this report, the U.S. Depository Trust and Clearing Corporation ( DTCC ) plans to launch a related service in October 2026, allowing participants to create tokenized representations of qualified securities held in DTC. Participants will be able to transfer these representations to approved wallets and convert between traditional records and tokenized records.

Regarding the trading interfaces, Atkins stated that the staff of SEC issued a statement in April explaining the impact of certain interfaces used for preparing tokenized securities transactions on the registration of brokerage dealers. In August, the commission proposed the 'Cryptocurrency Regulations' ( Regulation Crypto Assets ), which he described as a framework applicable to the issuance of certain investment contracts involving cryptocurrency assets.

US stock token exemption requires shareholder rights to be equivalent

In the recent actions of that institution, Atkins mentioned an "innovative exemption" ( Innovation Exemption ) for tokenized national market system ( National Market System ) stock trading.

A report released on September 20 examined this five-year exemption for stock tokens, which was introduced by SEC on September 17. Under this framework, eligible tokens must possess the same corporate rights, dividends, voting, and liquidation rights as traditional stocks of the same category.

Under this exemption, SEC excludes synthetic stock products and requires eligible trading venues to stop token trading when the underlying stocks are suspended from their main listing exchanges. For tokens issued by third parties, trading venues must notify the issuing entity and wait for at least 30 natural days before listing; if the issuer raises any objections, the trading shall not proceed.