SEC Proposes Conditional Crypto Self-Custody for Advisers

The U.S. Securities and Exchange Commission proposed crypto custody rules on Oct. 1, 2026, that would give registered investment advisers and regulated funds a defined path to hold digital assets themselves, but only when no permitted custodian can do the job. According to Forexcrunch, the proposal amends the Investment Advisers Act of 1940 and the Investment Company Act of 1940, statutes written for traditional assets rather than blockchain-based ones.

The plan replaces the approach taken under former SEC Chair Gary Gensler. A 2023 safeguarding proposal would have widened qualified-custodian requirements, but it drew criticism because suitable custodians were unavailable for many crypto assets; the SEC withdrew it in June 2025 without adopting it, Financemagnates reported. The new framework retains custody controls while adding alternatives where conventional providers cannot support a particular asset.

Also read: Bitcoin Jumps 5% as SEC Advances Digital Securities Plan

Key facts

• The SEC proposed the rules on Oct. 1, 2026, covering registered investment advisers, registered investment companies and business development companies.
• Self-custody would be a fallback available only after an adviser documents that no permitted custodian is available for each asset, with that assessment repeated every quarter.
• State trust companies could act as crypto custodians subject to state authorization for crypto custody, loss-prevention procedures, audited financial statements and segregation of client assets.
• A 60-day public comment period opens once the SEC’s release is published in the Federal Register, and the proposal is not final.
• SEC Chairman Paul S. Atkins said the rules had not kept pace with a market that has grown from a niche curiosity into a multi-trillion-dollar asset class.

What the proposal would change

Advisers currently must keep client assets with qualified custodians that meet strict safekeeping standards, but which crypto arrangements satisfy that bar has long been unclear. Many firms have stayed away from digital-asset strategies as a result. In a May 2025 submission to the SEC, the Digital Chamber said some advisers had declined token allocations or asked portfolio companies to hold them until custody became available, Forexcrunch reported.

Under the proposal, an adviser could hold client crypto itself only after establishing that no permitted custodian exists for a given asset, and would have to reassess that determination quarterly. If a custodian becomes available, assets would have to move across as soon as reasonably practicable. Self-custody would carry conditions: safeguards around private keys, cybersecurity protections, separation of each client’s holdings, and approval by at least two authorized individuals for any transfer. An SEC official said such cases would likely be unusual, perhaps a newly launched token that custodians do not yet support.

Also read: Bitcoin Falls 4% as Crypto Stocks Slide on Stalled US Regulation Bill

Regulated funds could keep crypto with their adviser under the same requirements, with the fund’s board overseeing the arrangement. Financemagnates reported that clients would receive quarterly statements, and that firms would need annual control and cybersecurity reviews, including independent accountant reporting. News.bitcoin reported that an adviser taking direct custody would obtain an independent accountant’s internal control report within six months and annually thereafter, and that the package also would update recordkeeping and disclosures, including conditional use of blockchain records and reporting on tokenized fund shares.

Trust companies and earlier groundwork

News.bitcoin reported that state supervision already addresses asset separation, including under New York’s Department of Financial Services guidance issued Sept. 30, 2025, which emphasizes separate accounting and segregation of customer crypto assets for licensed virtual currency businesses and New York limited purpose trust companies in crypto custody. Federal treatment of these institutions has drawn disagreement among SEC commissioners over crypto custody protections. In September 2025, staff offered conditional assurances against recommending enforcement action. Commissioner Hester M. Peirce supported the flexibility, while Commissioner Caroline A. Crenshaw criticized its legal basis and investor safeguards, News.bitcoin reported.

The custody plan follows the SEC’s August Regulation Crypto Assets proposal, which would create new fundraising exemptions for token issuers and define when a crypto asset may cease to be treated as part of an investment contract, Financemagnates reported. News.bitcoin reported that the draft entered White House review in August, when the Office of Information and Regulatory Affairs assessed it, and that Atkins outlined his request for rules permitting conditional adviser self-custody during Sept. 14 remarks at the Solana Policy Institute Summit.

Why it matters

Advisers and funds that have avoided digital assets because of custody ambiguity could gain a compliance route where none existed, while clients receive quarterly statements and fund boards would oversee both the decision to self-custody and the protections applied. The proposed recognition of state trust companies would widen the custody market beyond banks and broker-dealers. The shift matters because it replaces a framework that critics said assumed custodians that often did not exist for newer tokens.

What to watch

Attention now turns to the Federal Register, where publication starts the 60-day comment clock. Until a final rule is adopted, the proposed self-custody route and the new treatment of state trust companies do not change existing custody requirements, Financemagnates reported.

None of this is financial advice, and the digital-asset market is volatile and uncertain.

Written by

Emily Torres

Emily Torres covers cryptocurrency and decentralized finance for StockPil, tracking blockchain markets and regulatory developments.

Sources: ForexCrunch, Financemagnates, News.bitcoin