SEC Crypto Rules Could Let Funds Self-Custody Digital Assets

The U.S. Securities and Exchange Commission proposed new SEC Crypto custody rules on Oct. 1 for investment advisers and regulated funds. The framework would permit limited self-custody and expand eligible crypto custodians under federal securities laws. The agency said existing custody requirements did not adequately address digital assets.

The proposal could alter how registered advisers structure crypto strategies for clients. It also addresses a recurring compliance problem involving assets without an available permitted third-party custodian. However, the framework remains a proposal and faces a public comment process before any final rule.

SEC Crypto Proposal Adds Limited Self-Custody Route

The SEC proposed amendments under the Investment Advisers Act of 1940 and Investment Company Act of 1940. The agency identified the rulemaking as File No. S7-2026-35, with releases IA-7023 and IC-36353.

Under the proposal, advisers could self-custody certain client or fund crypto assets under limited circumstances. Commissioner Hester Peirce said advisers must first determine that no permitted custodian can maintain the relevant crypto asset. They would have to repeat that determination quarterly.

Commissioner Mark Uyeda said the framework would impose safeguards where advisers use self-custody. Those measures cover cybersecurity protections, safeguarding expertise, annual reviews, internal reporting, client statements, and disclosures.

The SEC also proposed allowing state-chartered trust companies to serve as permitted crypto custodians under specified conditions. Uyeda said those companies already play an important role in the crypto custody sector.

SEC Crypto Rules Target Existing Custody Gaps

Chairman Paul Atkins said older custody requirements focused primarily on traditional financial assets. He said some permitted custodians lacked capabilities for newly issued crypto assets when those assets entered markets.

The proposal attempted to address that mismatch without removing existing asset-protection principles. Uyeda said segregation and proper controls remained central requirements despite differences between digital and paper-based assets.

The framework would also update non-crypto portions of existing custody rules. The SEC said proposed amendments addressed financial-statement audits for registered advisers and broker-dealer custody services for regulated funds.

Some proposed changes would affect when regulated funds can use broker-dealers as custodians. Others would address discretionary trading and certain standing letters of authorization, according to Uyeda.

The proposal also marks a departure from the SEC’s 2023 safeguarding initiative. Peirce said that earlier framework created practical problems because many crypto trading platforms did not qualify as custodians. She said the new approach would expand authorized custody options instead of relying exclusively on existing qualified custodians.

Uyeda also described self-custody as a fallback rather than a default arrangement. Advisers would retain fiduciary obligations when holding client crypto assets directly.

State Trust Companies Gain Proposed Custody Role

The state trust provision followed earlier SEC staff relief issued on Sept. 30, 2025. The Division of Investment Management then said it would not recommend enforcement in specified state-trust custody arrangements.

Commissioner Hester Peirce supported that earlier approach and said advisers had faced uncertainty over permissible crypto custodians. Commissioner Caroline Crenshaw opposed the relief, citing investor-protection concerns around state-chartered entities and custody standards.

The new proposal moves the issue from staff-level relief toward formal Commission rulemaking. Its conditions would determine which state trust companies could hold client and regulated-fund crypto assets.

The custody provisions do not automatically cover every crypto asset. Peirce said the adviser rule amendments apply when crypto assets qualify as funds or securities. Regulated-fund provisions apply to securities or similar investments held in fund accounts.

SEC Crypto Comment Period Sets Next Milestone

The Commission approved the proposal on Oct. 1, according to Peirce’s statement supporting the rulemaking. The SEC then opened the formal process for public feedback before considering any final regulations.

Atkins said the proposal sought to provide advisers and funds with a compliant custody pathway. His statement also connected the rulemaking with the agency’s broader 2026 crypto regulatory program.

That program included Regulation Crypto Assets, which the SEC proposed on Aug. 18. That separate proposal addressed offering rules for certain investment contracts involving crypto assets.

The custody proposal remains subject to revision after public comments. The SEC said comments will remain open for 60 days after publication in the Federal Register.

Publication in the Federal Register will therefore start the next verifiable deadline. Market participants can then assess the detailed conditions before the Commission decides whether to adopt final rules.