Key points

  • The 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 hold client and fund crypto assets.
  • The rules are proposals, not final requirements, and will face a 60-day comment period after Federal Register publication.

The U.S. Securities and Exchange Commission proposed a tailored custody framework for crypto assets on October 1, opening a formal rulemaking process that could broaden the options available to registered investment advisers and regulated funds. The proposal applies to registered advisers as well as registered investment companies and business development companies, according to the agency.

What the proposal would change

The SEC said the package would modernize requirements under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Its most consequential crypto provisions would permit self-custody in certain circumstances and allow state trust companies to serve as custodians for client and regulated-fund crypto assets. Those changes could expand the set of compliant arrangements available to institutions, but the agency has not presented them as an unrestricted right to hold assets internally.

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The proposal also addresses financial-statement audits for registered advisers and broker-dealer custodial services for regulated funds. These details matter because crypto custody is not only about where private keys are stored. It also involves segregation of client assets, independent verification, recordkeeping, controls over transfers and the ability to demonstrate ownership to auditors and regulators. Unlike a conventional account entry, control of a crypto asset may depend on access to cryptographic credentials, so operational design and recovery procedures can determine whether assets remain available after a security incident or service-provider failure.

A move from interim relief to rulemaking

The SEC's approach builds on earlier staff relief that allowed advisers and regulated funds, subject to conditions, to treat certain state trust companies as permissible custodians for crypto assets. That no-action position reduced immediate uncertainty but did not replace the underlying statutes or create a permanent, industry-wide rule. A Commission proposal can do more, although its text may change after public feedback and any final rule would require another vote.

The custody issue has been on the agency's public agenda for months. CoinDesk reported in September that SEC officials were preparing a proposal intended to clarify where advisers could place client crypto assets, including with state-chartered trusts. The October 1 release confirms that the Commission has moved from planning to a public proposal and adds the prospect of conditional self-custody.

Who is affected

Registered advisers that manage crypto exposure for clients would need to examine how the proposed safeguards interact with their fiduciary duties and existing custody procedures. Fund boards, auditors, broker-dealers and state trust companies also have a direct interest because the package touches each party's role in holding, verifying or overseeing assets. For crypto custody providers, eligibility would not by itself remove the need for operational controls, insurance decisions, cybersecurity protections and clear allocation of responsibility when assets move on-chain.

What happens next

Nothing changes immediately for investors or advisers. The SEC said comments will remain open for 60 days after the proposing release appears in the Federal Register. Market participants will be able to challenge the conditions for self-custody, the treatment of state trust companies and the audit or broker-dealer provisions. The final framework, if adopted, could therefore differ from the October 1 proposal. Until then, firms remain subject to current custody rules and any applicable staff guidance.

Sources

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