SEC proposes crypto custody path for advisers and funds

The Securities and Exchange Commission proposed a new custody framework Thursday that would let registered investment advisers and regulated funds hold certain crypto assets themselves when no permitted custodian is available. It would also create a route for state-chartered trust companies to safeguard client and fund crypto assets, subject to due diligence and control requirements.

The October 1 action is a proposal, not an effective rule. It does not authorize every adviser to hold every token, and it does not describe investors keeping their own keys. The Commission’s use of “self-custody” refers to an adviser maintaining assets for clients or a regulated fund.

A narrow path when outside custody is unavailable

Under File No. S7-2026-35, an adviser seeking to self-custody would first have to determine in writing that no permitted custodian is available for the particular crypto asset, then repeat that determination quarterly. The relevant Advisers Act provisions would apply only to crypto assets that are funds or securities. For regulated funds, the Investment Company Act provisions would cover crypto assets that are securities or similar investments.

That scope is important. The proposal is not a blanket classification of cryptocurrency, nor does it turn all crypto assets into securities. It supplies a custody framework only where the underlying federal custody statutes already reach the asset and account.

Self-custody would come with operational controls intended to address the conflict created when the adviser both manages and holds client property. The proposed safeguarding systems must address private-key management, require joint authorization by at least two people for transactions, and segregate each client’s crypto assets by the addresses that store them. Advisers would also need cybersecurity protections, documented reviews, client account information and an internal-control report prepared by an independent public accountant.

A regulated fund would face another layer of oversight. Before its adviser held an asset and quarterly thereafter, the fund board—including a majority of independent directors—would review the written finding that no qualified custodian would maintain it. The board would also make an annual reasonable-care determination about the arrangement.

State trust companies gain a proposed role

The second major route would make an eligible state trust company a permitted custodian for crypto assets and related cash or cash equivalents, even when it did not otherwise qualify as a “bank” under the applicable statute. Advisers and funds would have to establish a reasonable basis that the company is authorized by its state banking supervisor to provide crypto custody.

Before engagement and annually afterward, they would also review the trust company’s safeguarding policies, including private-key management and cybersecurity, and its audited financial statements. The proposal therefore expands the potential custodian pool without treating a state charter alone as sufficient.

What changes now—and what does not

Nothing in the proposal creates an immediate custody permission. The SEC opened a public-comment period lasting 60 days after the proposing release is published in the Federal Register; the release available October 1 did not yet supply that publication date or a fixed comment deadline.

The proposal also leaves implementation details exposed to comment across its extensive release, including how availability of a qualified custodian should be judged and how custody rules interact with staking and decentralized-finance activity. The Commission could revise the text before any final vote.

For asset managers, the significance is institutional rather than a same-day expansion of product access: the SEC has put a detailed compliance path on the record for adviser-held crypto and state-trust custody. Whether that path becomes law, and in what form, depends on the comment process and a later Commission action.