US SEC Digital Asset Funds and Custody Regime

For SEC-registered investment advisers, Rule 206(4)-2 under the Advisers Act governs custody of client funds and securities. The rule generally requires those assets to be maintained by a qualified custodian in a client-named account or an account containing only the adviser’s clients’ assets. It also includes client notice, account-statement, independent verification, pooled-vehicle audit, and qualified-custodian provisions.

For regulated funds, the Investment Company Act framework is centered on Section 17(f), Section 26(a), and related rules. SEC staff summarized that registered funds generally must place and maintain securities and similar investments with specified custodians. Rule 17f-1 addresses custody of securities and similar investments with members of national securities exchanges, including segregation, limits on liens, accountant examination, and SEC inspection access.

The main crypto-specific development is the SEC Division of Investment Management no-action letter issued on Sept. 30, 2025. The letter states that staff would not recommend enforcement action against registered advisers or regulated funds that treat a qualifying state trust company as a “bank” for custody of crypto assets and related cash or cash equivalents, subject to representations and conditions. The letter defines crypto assets as digital representations of value recorded on a cryptographically secured distributed ledger.

The no-action position is conditional. Before engaging a state trust company, and annually, a registered adviser or regulated fund must have a reasonable basis after due inquiry to believe the company is state-authorized and maintains safeguards addressing risks such as theft, loss, private key management, and cybersecurity. The arrangement also must include a written custody agreement, limits on lending or rehypothecation without consent, segregation from the trust company’s assets, risk disclosure, and a best-interest determination. The letter states that it is a staff position only, not a Commission rule.

SEC staff has historically treated crypto-related registered fund products as raising issues beyond custody. The 2018 cryptocurrency holdings letter identified valuation, liquidity, custody, ETF arbitrage mechanisms, and potential manipulation or other market risks as areas implicated by registered funds investing in digital assets or cryptocurrency-related investments. A later 2021 Bitcoin futures staff statement discussed cash-settled Bitcoin futures as avoiding some direct crypto custody challenges, but that statement was withdrawn on May 6, 2025.

These materials do not create a standalone approval pathway for crypto funds. They are better read as interpretive and supervisory context layered on top of existing Investment Company Act, Advisers Act, disclosure, valuation, liquidity, derivatives, custody, and anti-fraud requirements. Spot crypto exchange-traded products organized outside the 1940 Act may raise different issues and should not be conflated with registered investment companies.

The SEC’s 2023 Safeguarding Advisory Client Assets proposal would have redesigned the Advisers Act custody rule and expanded it from “funds and securities” to broader “assets,” including crypto assets. The Commission withdrew that proposed rulemaking, stating that it did not intend to issue final rules for the withdrawn proposals; the withdrawal took effect June 17, 2025.

A separate Spring 2025 Unified Agenda item, RIN 3235-AN46, lists “Amendments to the Custody Rules” as a proposed-rule-stage item. The agenda describes potential amendments or new rules under both the Investment Advisers Act and Investment Company Act to modernize custody of advisory client and fund assets, including crypto assets. The agenda is not itself a rule and does not impose obligations.

This is a U.S. federal securities-law profile. It is most relevant to registered investment advisers, private fund advisers with custody issues, registered investment companies, business development companies, fund boards, fund service providers, and custodians serving crypto asset strategies. It does not cover state money-transmitter licensing, CFTC commodity-pool rules, or tax treatment.