SEC proposes new crypto custody options for investment advisers and funds

The U.S. Securities and Exchange Commission proposed new crypto custody rules in Washington on October 1, 2026, that would give registered investment advisers and regulated funds more ways to hold eligible assets. Advisers could hold client crypto assets under limited conditions when no permitted custodian is available, while qualifying state trust companies could become another custody option. The measures are proposals, not rules in force.

The proposal covers registered investment advisers and regulated funds, including registered investment companies and business development companies. It would amend requirements under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The SEC says the changes are intended to address custody practices that developed after rules designed around traditional assets were written.

When advisers could hold client crypto assets

Under the proposed adviser custody pathway, an adviser would first have to determine that no permitted custodian is available to maintain a particular crypto asset. Commissioner Hester M. Peirce said that determination would be required before the adviser took custody and again every quarter. The Block also reported that the option would apply only in limited circumstances.

The SEC's fact sheet describes further conditions for advisers using that pathway. Advisers would need expertise in safeguarding each asset and documented systems to protect it against loss, theft, misuse and misappropriation. They would review those systems annually. Proposed controls would address private keys and require at least two people to authorize a crypto transaction jointly.

For a regulated fund relying on adviser custody, the fund's board would oversee the arrangement. The fact sheet says the board would review the finding that no permitted custodian is available at the outset and quarterly afterward. It would assess the adviser's reasonable care before custody began and annually thereafter. Those proposed checks make the fund arrangement more than a decision by an adviser acting alone.

What adviser ‘self-custody’ means in the proposal

Peirce cautioned that the proposal's use of ‘self-custody’ refers to an adviser acting as custodian for a client's assets. It does not mean an individual investor directly holds and controls their own crypto. The Block made the same distinction in its report on the proposal. That distinction matters because the proposed conditions attach to the adviser holding assets on behalf of clients.

Peirce said traditional permitted custodians have not always been available or equipped to safeguard a substantial range of crypto assets. She also argued that the SEC's 2023 custody proposal had made compliant crypto custody appear impossible for some advisers. Her comments explain the regulatory concern behind the new option; the current proposal still has to go through public comment before any final decision.

How state trust companies could qualify

The SEC also proposes allowing state trust companies to custody crypto assets for advisory clients and regulated funds. Before using one, and annually thereafter, an adviser or fund would need a reasonable basis, after due inquiry, to believe it was authorized by the relevant state banking authority and had written safeguards against theft, loss, misuse and misappropriation, Peirce said.

The fact sheet describes additional proposed checks, including review of audited financial statements and internal control reports and separation of client assets from a trust company's own assets. It says some state chartered limited purpose trust companies have sought to provide crypto custody, while their status under the existing definition of a bank can depend on a fact specific analysis of state and federal law. The proposal would address that custody route directly.

Other custody changes under consideration

The proposed amendments extend beyond crypto custody. According to the SEC, they would update requirements concerning adviser financial statement audits and broker dealer custodial services for regulated funds. The fact sheet also describes changes involving discretionary trading authority, standing letters of authorization and inadvertent custody, as well as recordkeeping, disclosures and forms that collect information about crypto custody and tokenized fund shares.

SEC Chairman Paul S. Atkins said in the agency's October 1 announcement that existing custody rules had not kept pace with the crypto market. He said the proposal was intended to offer a clearer framework for advisers and funds. The Block reported that the custody question matters to asset managers and hedge funds seeking to hold bitcoin and other crypto assets directly rather than through exchange traded funds or other intermediaries.

When the public can comment

The SEC says the comment period will run for 60 days after the proposing release is published in the Federal Register. The publication date, and therefore the calendar deadline for comments, was not established by the available materials. The commission will consider comments before deciding whether to adopt, revise or abandon the proposed rules.

The scope of any eventual requirements also needs care. Peirce cited the proposing release as saying the adviser custody amendments would apply to crypto assets that meet the relevant definitions of funds or securities, while the fund custody rules would apply to securities or similar investments. The announcement does not mean that every crypto asset held by every investor would come under the proposed arrangements.