SEC Proposes Crypto Custody Rules for Advisers and Funds

The SEC has proposed a tailored custody framework that could let advisers and regulated funds use state trust companies or self-custody crypto in limited circumstances.

Key points

The SEC proposal covers registered investment advisers, registered investment companies and business development companies.
It would permit self-custody in certain circumstances and allow state trust companies to serve as crypto custodians.
The measure is a proposal, not a final rule, and comments are due 60 days after Federal Register publication.

The U.S. Securities and Exchange Commission has proposed a new framework for how registered investment advisers and regulated funds may hold crypto assets for clients. Announced October 1, the package would update custody rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. It remains a proposal and does not immediately change the obligations of advisers, funds or custodians.

Who the proposal covers

The SEC says the framework would apply to registered investment advisers and regulated funds, including registered investment companies and business development companies. The agency's rulemaking page describes the covered assets as client crypto funds and securities, along with crypto securities and similar investments held by regulated funds. The package also includes related reporting and recordkeeping changes and would redesignate the existing adviser custody rule.

Two custody routes under review

The most consequential features concern who may safeguard the assets. According to the SEC's press release, the proposal would allow state trust companies to act as custodians for client and regulated-fund crypto assets. It would also permit self-custody in certain circumstances. Those provisions could widen the set of available arrangements when conventional custodial services are unavailable, but the agency has not granted a general exemption from custody controls. The detailed conditions and operational safeguards in the proposing release would govern whether an arrangement qualifies.

The SEC also proposes modernizing requirements that are not limited to crypto. Its announcement cites financial-statement audits for registered investment advisers and broker-dealer custodial services for regulated funds as areas covered by the amendments. The agency presents the package as an effort to align older rules with current market practices while retaining protections against loss, theft, misuse and misappropriation.

Why the proposal matters

Custody is a practical barrier between institutional interest in digital assets and actual client exposure. Advisers must know who controls private keys, how assets are segregated, which entity is legally responsible for safekeeping and what records can demonstrate ownership. A framework that recognizes state trust companies and narrowly defined self-custody could give firms additional options, while also making cybersecurity, governance and audit controls central to compliance decisions for each client account.

Reuters independently reported that the SEC described the measure as a way to govern investment funds' crypto custody under federal securities laws. Chair Paul Atkins said the proposal was intended to create a compliant pathway where the existing rules had left uncertainty. The policy direction is clear, but the outcome is not: public comments may lead the Commission to revise definitions, eligible custodians, safeguards or reporting requirements before any final vote.

What happens next

The proposal carries file number S7-2026-35 and release numbers IA-7023 and IC-36353. The SEC says comments will remain open for 60 days after the proposing release is published in the Federal Register. Until the Commission reviews that record and adopts a final rule, advisers and funds must continue to follow the custody requirements currently in force. The next points to watch are the Federal Register publication, industry responses on self-custody and state trust companies, and whether the final text preserves the proposed flexibility without weakening asset-segregation and verification standards.

Sources

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