SEC proposes crypto custody framework: when advisers could self-custody

The U.S. Securities and Exchange Commission voted 3-0 on 1 October to issue proposed “Adviser and Regulated Fund Custody Rules; Crypto Custody Rules”, file S7-2026-35. The proposal would create a framework for registered investment advisers and regulated funds: advisers could “self-custody” client crypto assets under specified conditions when no permitted custodian is available, and qualifying state trust companies could serve as custodians.

The essential boundary is that this is a proposed rule, not an effective final rule. The comment period will run for 60 days after publication in the Federal Register. The Commission may revise, decline to adopt or proceed with a later final text. Votes by Paul Atkins, Hester Peirce and Mark Uyeda approved publication for comment, not the final requirements.

“Self-custody” does not mean investor custody

Here, self-custody means an adviser holding assets for clients; it does not mean an individual investor controlling personal keys. Commissioner Peirce specifically noted the terminology could confuse those two arrangements.

An adviser would first have to determine that no permitted custodian is available and repeat that assessment quarterly. It would need documented expertise for each asset, safeguarding systems addressing loss, theft, misuse and misappropriation, private-key management, and joint authorisation by at least two people for every crypto transaction.

Further conditions include a client-specific address holding only that client’s assets; annual cybersecurity review; an independent accountant’s internal-control report within six months and annually thereafter; quarterly client statements; and a written agreement treating each asset as a “financial asset” under applicable state law.

For regulated funds, the board would review the no-custodian determination initially and quarterly, and determine before use and annually thereafter whether the assets would receive reasonable care in adviser custody.

State trust companies are not automatically eligible

Before appointing a state trust company, and annually thereafter, the adviser or fund would need a reasonable basis after due inquiry to believe the company is authorised by its state banking regulator and has adequate written safeguards. It would review the latest audited financial statements and internal-control report, and client assets would have to be segregated from the trust company’s proprietary assets.

That is narrower than saying the SEC has endorsed every state trust company. Authority, controls, financial condition and segregation remain conditions.

Scope is narrower than “all crypto”

The Advisers Act custody rule applies to client funds and securities over which an adviser has custody. The Investment Company Act rules apply to a regulated fund’s securities and similar investments. The proposal does not create a universal custody licence for every token, wallet or trading platform.

It also contains non-crypto modernisation covering broker-dealer custody, authorised discretionary trading, standing letters of authorisation, inadvertent custody, audit timing, recordkeeping and Form ADV and N-CEN reporting.

Impact on traders and firms

Investors should not infer that a manager may use the new arrangements merely because it cites the proposal. They should verify the legal entity, SEC registration, actual custodian, segregation, key controls, account statements and control reports.

Custodians, state trust companies, broker-dealers and fund service providers may gain opportunities, but the proposal couples access with due diligence, audits, controls and continuing oversight. Firms should wait for any final rule and transition schedule rather than treat the proposal as a current exemption.

TraderVote view

The proposal addresses what regulated firms can do when existing permitted custodians do not support a new asset. It expands custody options while attaching expertise, cybersecurity, address segregation, dual approval, accountant reporting and board oversight.

The next evidence points are Federal Register publication, comments, revisions and a final adoption and effective date. Until then, current law remains the operative baseline.

Sources

SEC press release, published 1 October and accessed 3 October 2026: https://www.sec.gov/newsroom/press-releases/2026-100-sec-proposal-would-address-how-investment-advisers-funds-can-custody-crypto-assets-under-federal

SEC proposed rule page, file S7-2026-35, published 1 October and accessed 3 October 2026: https://www.sec.gov/rules-regulations/2026/10/s7-2026-35

SEC fact sheet: https://www.sec.gov/files/ia-7023-fact-sheet.pdf

SEC final Commission vote record: https://www.sec.gov/about/commission-votes/annual/commission-votes-2026-10.xml

Bloomberg Law corroborating report: https://news.bloomberglaw.com/crypto/sec-moves-to-ease-rules-for-investment-firms-to-hold-crypto

Written independently by Hengyuan from public information verifiable as of 3 October 2026. This article is not investment or legal advice.