The U.S. Securities and Exchange Commission on Oct. 1 proposed new custody rules for investment advisers and regulated funds holding crypto assets. The framework would permit limited self-custody and broaden the pool of eligible crypto custodians under federal securities laws, addressing what the agency described as existing custody requirements that do not adequately cover digital assets.

If adopted, the proposal could change how registered advisers structure crypto strategies for clients and would tackle a recurring compliance problem involving assets with no available permitted third-party custodian. The framework remains a proposal, however, and must clear a public comment process before any final rule.

Limited Self-Custody Route

The SEC proposed amendments under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, identifying the rulemaking as File No. S7-2026-35, with releases IA-7023 and IC-36353.

Under the proposal, advisers could self-custody certain client or fund crypto assets in limited circumstances. Commissioner Hester Peirce said advisers must first determine that no permitted custodian can maintain the relevant crypto asset, and would have to repeat that determination quarterly.

Commissioner Mark Uyeda said the framework would impose safeguards wherever advisers use self-custody, covering cybersecurity protections, safeguarding expertise, annual reviews, internal reporting, client statements, and disclosures.

The SEC also proposed allowing state-chartered trust companies to serve as permitted crypto custodians under specified conditions. Uyeda said those companies already play an important role in the crypto custody sector.

Closing Existing Custody Gaps

Chairman Paul Atkins said older custody requirements focused primarily on traditional financial assets, and that some permitted custodians lacked capabilities for newly issued crypto assets when those assets entered markets. The proposal attempts to address that mismatch without removing existing asset-protection principles.

Uyeda said segregation and proper controls would remain central requirements despite the differences between digital and paper-based assets.

The framework would also update non-crypto portions of the existing custody rules. The SEC said the proposed amendments address financial-statement audits for registered advisers and broker-dealer custody services for regulated funds. Some proposed changes would affect when regulated funds can use broker-dealers as custodians, while others would address discretionary trading and certain standing letters of authorization, according to Uyeda.

The proposal also marks a departure from the SEC's 2023 safeguarding initiative. Peirce said that earlier framework created practical problems because many crypto trading platforms did not qualify as custodians, and said the new approach would expand authorized custody options instead of relying exclusively on existing qualified custodians.

Uyeda described self-custody as a fallback rather than a default arrangement. Advisers would retain fiduciary obligations when holding client crypto assets directly.

State Trust Companies Gain Proposed Custody Role

The state trust provision followed earlier SEC staff relief issued on Sept. 30, 2025, when the Division of Investment Management said it would not recommend enforcement in specified state-trust custody arrangements. Peirce supported that earlier approach and said advisers had faced uncertainty over permissible crypto custodians. Commissioner Caroline Crenshaw opposed the relief, citing investor-protection concerns around state-chartered entities and custody standards.

The new proposal moves the issue from staff-level relief toward formal Commission rulemaking, with conditions that would determine which state trust companies could hold client and regulated-fund crypto assets.

The custody provisions do not automatically cover every crypto asset. Peirce said the adviser rule amendments apply when crypto assets qualify as funds or securities, while regulated-fund provisions apply to securities or similar investments held in fund accounts.

Comment Period Sets Next Milestone

The Commission approved the proposal on Oct. 1, according to Peirce's statement supporting the rulemaking, opening the formal process for public feedback before any final regulations are considered.

Atkins said the proposal seeks to provide advisers and funds with a compliant custody pathway, and connected the rulemaking with the agency's broader 2026 crypto regulatory program. That program includes Regulation Crypto Assets, which the SEC proposed on Aug. 18 and which addresses offering rules for certain investment contracts involving crypto assets.

The custody proposal remains subject to revision after public comments. The SEC said the comment period will remain open for 60 days after publication in the Federal Register, an event that will start the next verifiable deadline. Market participants can then assess the detailed conditions before the Commission decides whether to adopt final rules.

Source: The Market Periodical