Key Insights
- SEC Crypto rules proposed a limited route for institutional self-custody.
- State-chartered trust companies could qualify as permitted crypto custodians.
- Public comments will run 60 days after Federal Register publication.
On Oct. 1, the U.S. Securities and Exchange Commission introduced proposed SEC Crypto custody rules directed at investment advisers and regulated funds. This framework intends to permit restricted self-custody alongside an expansion of eligible crypto custodians within the scope of federal securities laws. The regulatory agency noted that pre-existing custody guidelines failed to sufficiently address digital assets.
These proposed changes could reshape how registered advisers organize crypto-related strategies for their clients. The measure additionally targets an ongoing compliance hurdle concerning assets that lack an available permitted third-party custodian. Nevertheless, the regulatory framework remains a proposal at this stage and must navigate a public comment window before any potential final enactment.
SEC Crypto Proposal Adds Limited Self-Custody Route
The Commission put forward these amendments under the authority of the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The agency categorized the rulemaking initiative under File No. S7-2026-35, with corresponding releases IA-7023 and IC-36353.
Under the terms of the proposal, advisers would be authorized to self-custody specific client or fund digital assets under narrowly defined conditions. Commissioner Hester Peirce explained that advisers must initially establish that no permitted custodian is capable of holding the asset in question, an assessment they would be required to perform on a quarterly basis.
Commissioner Mark Uyeda pointed out that the structure would enforce stringent safeguards whenever advisers utilize self-custody. These mandated measures encompass cybersecurity defenses, safeguarding expertise, annual evaluations, internal reporting mechanisms, client statements, and regulatory disclosures.
Additionally, the SEC suggested permitting state-chartered trust companies to function as authorized crypto custodians under particular prerequisites. Uyeda noted that such entities already fulfill a significant function within the digital asset custody ecosystem.
SEC Crypto Rules Target Existing Custody Gaps
Chairman Paul Atkins observed that older custody regulations were designed primarily with traditional financial assets in mind. He stated that certain permitted custodians lacked the operational capabilities required for newly launched crypto assets as they emerged in the marketplace.
The latest proposal seeks to bridge this mismatch without discarding foundational asset-protection principles. Uyeda emphasized that asset segregation and robust controls remain core mandates, regardless of the structural differences dividing digital and paper assets.
Furthermore, the framework addresses non-crypto elements embedded in current custody directives. According to the SEC, the proposed amendments tackle financial-statement audits for registered advisers alongside broker-dealer custody services for regulated investment funds.
Certain adjustments would influence the circumstances under which regulated funds are permitted to utilize broker-dealers as custodians. Additional changes would target discretionary trading practices and specific standing letters of authorization, as outlined by Uyeda.
This initiative also represents a departure from the agency’s 2023 safeguarding proposal. Peirce remarked that the earlier framework generated practical difficulties because numerous crypto trading platforms failed to meet the criteria for qualified custodians. She suggested the updated strategy broadens authorized custody choices rather than depending exclusively on pre-existing qualified custodians.
Moreover, Uyeda characterized self-custody as an option of last resort instead of a default practice. Advisers would retain their baseline fiduciary duties when managing client crypto assets directly.
State Trust Companies Gain Proposed Custody Role
The inclusion of state trust provisions builds upon previous SEC staff relief granted on Sept. 30, 2025. At that time, the Division of Investment Management announced it would refrain from recommending enforcement actions regarding designated state-trust custody arrangements.
While Commissioner Hester Peirce backed the earlier directive—noting that advisers had grappled with ambiguity regarding acceptable crypto custodians—Commissioner Caroline Crenshaw dissented, pointing to investor-protection anxieties tied to state-chartered institutions and their custody benchmarks.
The new proposal transitions the matter from staff-level guidance into formal Commission rulemaking. Its stipulated conditions will dictate which state trust companies are eligible to hold crypto assets belonging to clients and regulated funds.
Importantly, these custody provisions do not apply universally to every digital asset. Peirce clarified that the amendments targeting adviser rules take effect when crypto assets fit the legal definition of funds or securities, whereas regulated-fund rules apply to securities or comparable investments maintained within fund accounts.
SEC Crypto Comment Period Sets Next Milestone
The Commission voted to approve the proposal on Oct. 1, according to a statement issued by Peirce in support of the rulemaking. Following this, the agency launched a formal solicitation for public feedback prior to weighing any definitive regulations.
Atkins remarked that the proposal aims to offer advisers and funds a compliant pathway for custody. He also linked the rulemaking effort to the agency’s broader 2026 digital asset regulatory agenda.
That overarching program featured Regulation Crypto Assets, which the SEC previously proposed on Aug. 18 to address offering protocols for select investment contracts involving crypto assets.
The current custody proposal remains open to revisions shaped by public input. The SEC confirmed that the comment window will stay active for 60 days following its official publication in the Federal Register.
Consequently, publication in the Federal Register establishes the next definitive timeline, allowing market participants to evaluate the specific provisions before the Commission ultimately decides whether to adopt final rules.