Many investment advisors have been reluctant to engage with clients looking to invest in cryptocurrencies in part due to the nebulous regulatory framework surrounding digital assets. The Securities and Exchange Commission is looking to change that.
On Thursday, the SEC released a proposal that would set rules of the road for advisors to hold custody of clients' crypto holdings, filling in a regulatory gap to further legitimize an asset class the administration has been aggressively promoting.
"Since the advent of Bitcoin in 2008, the crypto-asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure," says SEC Chairman Paul Atkins. "Unfortunately, our rules and regulations have not kept pace."
Atkins, who co-chaired a crypto lobbying group before rejoining the SEC in 2025, has embraced the Trump administration's stated goal of making the United States "the crypto capital of the world."
The SEC says that the absence of a regulatory framework has made it challenging for investors to find registered investment advisors who would hold custody of crypto assets the way they do with traditional investments. The SEC's proposal "would provide a clear regulatory framework for the custody of crypto assets, giving investment advisors and funds a compliant pathway where none existed before," Atkins says.
The change would allow advisors to self-custody crypto holdings on behalf of individual clients or funds if they determine that another custodian isn't available and they can demonstrate that they have expertise in safely handling digital assets. The proposal stipulates that advisors must store clients' crypto assets siloed from one another and mitigate cybersecurity risks associated with those holdings.
Government efforts. The move comes amid ongoing efforts across various precincts of government to forge a coherent approach to crypto regulation. The SEC has formed its own crypto task force and has been working with another federal agency, the Commodity Futures Trading Commission, to harmonize oversight of the industry. In Congress, the digital-asset industry has aligned behind the Clarity Act, another effort to establish a regulatory framework, though that measure failed a key Senate vote last month, torpedoed in part by Democrats' contention that it didn't do enough to rein in the Trump family's crypto business dealings.
At the state level, securities regulators in New York and Wyoming, two states at opposite poles of the political spectrum, announced a joint agreement to coordinate on oversight of the crypto industry, including exam schedules, licensing and chartering functions, and sharing supervisory reports and other materials.
Steve Gannon, a partner with the law firm Davis Wright Tremaine, says that while it is "a bit of a surprise" that those two states reached a memorandum of understanding, the agreement could become a model for other states to follow as they look to harmonize their crypto rules. "I think it was an effort to make sense of what is now a jigsaw puzzle of state-level requirements around crypto licensing," he says.
Industry support. The SEC's new crypto-custody proposal has garnered at least preliminary support from the Investment Adviser Association, a trade group representing RIAs.
"While we have much more work to do to analyze the lengthy proposal, our preliminary reaction is very positive," the group says, lauding the commission for proposing a "workable framework for the custody of crypto assets" through an update of the Custody Rule. "Providing greater clarity in this area is essential to the safekeeping of clients' crypto assets."
The SEC will accept comments from the public on the proposal for 60 days following its publication in the Federal Register.
Write to advisor.editors@barrons.com