Key Highlights:
- Securities and Exchange Commission Chairman Paul S. Atkins signaled upcoming regulatory proposals aimed at preventing onchain markets from being driven offshore.
- The SEC’s planned custody overhaul would permit self-custody under specific conditions, recognize state trust companies as custodians, and address broker-dealer safekeeping services.
- Complementary customer-protection proposals outline proof-of-reserves verifications, asset segregation, and a 28-day transfer window to external noncustodial wallets.
Securities and Exchange Commission Chairman Paul S. Atkins has announced that federal regulators are preparing additional rule proposals designed for the digital asset sector. In an Oct. 1 statement, Atkins argued that outdated regulatory mandates should not compel onchain markets—environments where financial transactions settle directly on blockchains—to migrate offshore. His position marks an effort to modernize federal oversight while retaining digital asset activity within the domestic regulatory perimeter.
SEC Advances Tailored Custody Framework for Investment Advisers and Funds
Chairman Paul S. Atkins delivered his remarks alongside newly proposed modifications regarding how registered investment advisers and regulated funds must safeguard investor capital. The regulatory initiative introduces a tailored custody structure that would formally accommodate self-custody under defined parameters. Furthermore, the framework recognizes state trust companies as qualified custodians while establishing revised guidelines for adviser audits and broker-dealer safekeeping functions for funds.
The latest custody push follows earlier administrative developments rolled out by federal regulators. On Sept. 17, the SEC introduced the Innovation Exemption, which offers temporary and conditional regulatory relief for eligible trading platforms and liquidity providers facilitating transactions in tokenized stocks—conventional equity shares represented on a blockchain. That exemption is conditioned upon granting access exclusively to approved participants and maintaining equivalent shareholder rights, with all baseline federal anti-fraud and anti-manipulation provisions remaining fully enforceable.
These initiatives complement the agency’s August proposal, Regulation Crypto Assets. Designed to provide structured capital-raising pathways for digital assets, that proposal sets out a one-time exemption for qualifying investment contract offerings of up to $5 million over a four-year horizon, alongside a higher-tier track allowing up to $75 million per 12-month period. Under federal securities precedent, investment contracts generally involve expected financial returns generated through the entrepreneurial or managerial efforts of third parties. Both exemptive pathways mandate foundational disclosures, while the larger $75 million tier imposes obligations for audited financial statements and continuous reporting.
Customer Safeguards: Proof of Reserves and Direct Wallet Deliveries
Parallel regulatory priorities focus heavily on market integrity and customer asset segregation. Selig outlined customer-protection measures on Oct. 5 anchored in the Commodity Exchange Act, the statute governing specific financed retail transactions detailed in a joint staff statement between regulatory agencies. Under this approach, intermediaries holding pooled customer property would face proof-of-reserves standards to verify backing, while operating under rigorous capitalization rules, disclosure requirements, and strict segregation protocols to ensure customer funds are never commingled with proprietary firm assets.
Additionally, Selig proposed establishing a bright-line standard clarifying that transferring purchased digital assets to an external noncustodial wallet within 28 days generally meets the exception to registered-exchange trading requirements. This provision follows the regulatory withdrawal of earlier digital asset delivery guidance in December 2025. A noncustodial wallet affords the holder direct control over the cryptographic private credentials required to transfer cryptocurrencies and tokens.
Regulators emphasized that this 28-day delivery standard focuses specifically on the physical and operational transfer of cryptocurrencies and blockchain-based assets, functioning separately from the SEC’s specific custody rules directed at investment advisers and registered investment funds.
Why This Matters
The series of actions led by SEC Chairman Paul S. Atkins and regulatory staff signals a coordinated shift from pure enforcement toward structured rulemaking. By tackling the complex mechanics of self-custody, tokenized equities, state trust custodian eligibility, and proof-of-reserves transparency, the regulatory agency is seeking to establish an operational standard that accommodates decentralized networks while safeguarding retail and institutional investors.
The current phase represents an advance notice of proposed rulemaking intended to gather formal industry and public feedback before definitive legal texts are enacted. Stakeholders and the public have a 60-day window following official publication in the Federal Register to submit written comments via Regulations.gov.
Frequently Asked Questions
What changes is the SEC proposing for digital asset custody?
Under SEC Chairman Paul S. Atkins, the proposed framework establishes tailored rules permitting self-custody in designated circumstances, authorizes state trust companies to serve as recognized custodians, and updates safekeeping, audit, and broker-dealer requirements for registered investment advisers and investment funds.
What is the 28-day noncustodial wallet delivery rule?
Based on remarks outlined by Selig, transferring digital assets to an investor’s external noncustodial wallet within 28 days is proposed to satisfy an exception to registered-exchange trading requirements, clarifying asset delivery following the withdrawal of earlier guidance in December 2025.
How can the public submit feedback on the SEC’s proposed rules?
Interested parties may file formal written comments within 60 days following the publication of the notice in the Federal Register, with submissions hosted publicly on Regulations.gov.
