The Securities and Exchange Commission has proposed changes to its adviser custody rules, including a first-of-its-kind framework for cryptoasset custody, according to an analysis by the law firm Latham & Watkins LLP.

The proposal targets the custody requirements that registered investment advisers must meet under the Investment Advisers Act. Latham & Watkins, which published the client alert summarizing the plan, frames the crypto piece as the most significant structural shift for advisers holding digital assets for clients.

What do the changes cover?

The proposal revises the SEC's existing custody regime for advisers and builds a dedicated framework for how advisers may custody cryptoassets on behalf of clients. Latham & Watkins's analysis indicates the changes would reshape adviser obligations around qualified custodians and the safeguards that apply when the assets in question are digital rather than traditional securities.

For advisory firms, the operational stakes are direct. Custody arrangements sit at the center of adviser compliance programs, and any change to the definition and treatment of qualified custodians flows straight into:

• which service providers advisers can use to hold client cryptoassets;
• how advisers document and verify custody arrangements;
• what operational and reporting changes firms must make to stay compliant.

Why does crypto get its own framework?

The SEC has long struggled to fit digital assets into custody rules written for traditional securities. Tokens move on blockchains, not at banks or broker-dealers, and the mechanics of on-chain settlement don't map cleanly onto legacy custodian models. A dedicated cryptoasset framework signals the agency wants advisers to treat digital-asset custody as its own compliance discipline rather than a footnote to existing rules.

The Latham & Watkins alert walks through what the proposal would mean for advisers, custodians and other market participants handling cryptoassets, and it flags the compliance decisions firms will face if the changes are adopted as proposed.

What happens next?

The proposal now moves through the SEC's rulemaking process. Advisers and custodians tracking the rule should watch for the comment period and any final adoption timeline, which will set the effective compliance deadlines firms must meet.