The Custody Proposal is best understood as two related projects. The first is a crypto custody framework intended to address circumstances in which the existing qualified custodian model has not provided a workable path for particular crypto assets or providers. The second is a broader modernization of custody requirements that reaches more traditional assets and long-running interpretive questions. Firms that do not advise on crypto assets could still be affected by the proposed rules on discretionary trading authority, pooled vehicle audits, standing letters of authorization, inadvertent custody, broker-dealer custody, recordkeeping, and reporting.

The SEC also would redesignate the Advisers Act custody rule—now…