The Securities and Exchange Commission moved Thursday to resolve one of the most persistent operational hurdles for institutional crypto adoption, proposing a new custody framework that would give registered investment advisers and regulated funds a clear legal pathway to hold digital assets for clients.

The proposal, issued under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, would permit crypto assets to be held through state-chartered trust companies and, in limited circumstances, allow advisers to custody the assets themselves. The commission said the existing custody rules were largely written before the internet era and were never designed to accommodate private-key management, blockchain settlement,…