SEC Crypto Custody Rule Proposal: Advisers, Funds, Self-Custody

Short answer: On October 1, 2026, the U.S. Securities and Exchange Commission proposed rules on how registered investment advisers (RIAs) and regulated funds — registered investment companies such as mutual funds and ETFs, plus business development companies (BDCs) — may hold crypto assets for clients. The proposal would let state-chartered trust companies act as crypto custodians and, for the first time, allow an adviser to hold a client's crypto itself when no permitted custodian supports that asset, under strict safeguards. Comments are due by December 7, 2026; nothing changes until the SEC adopts a final rule.

What exactly did the SEC propose?

The package, titled "Adviser and Regulated Fund Custody Rules; Crypto Custody Rules" (file S7-2026-35, releases IA-7023 and IC-36353), amends rules under both the Investment Advisers Act and the Investment Company Act of 1940. The SEC describes the goal as a tailored framework that removes barriers stopping advisers from offering crypto-related advice and lets regulated funds run a wider range of crypto strategies.

The existing adviser custody rule requires client funds and securities to sit with a "qualified custodian" — typically a bank, a broker-dealer or a futures commission merchant. Many of those institutions either do not support crypto or add new tokens only months after launch. As Commissioner Hester Peirce noted in her statement, the SEC's 2023 safeguarding proposal made compliant crypto custody look close to impossible; that proposal was withdrawn in June 2025. Chairman Paul Atkins argued that the old rules predate the internet and have not kept pace with a multi-trillion-dollar market.

Who can be a custodian under the proposal?

• Existing qualified custodians — banks, broker-dealers and similar institutions — remain available. The proposal also removes some outdated conditions on broker-dealers serving as custodians for funds.
• State trust companies. The proposal turns a September 30, 2025 staff no-action letter into a binding rule. Before hiring a state trust company, and every year after, the adviser or fund must reasonably believe after due inquiry that the company is authorized by its state banking regulator to custody crypto, has written policies against loss, theft and misuse, and keeps client assets separate from its own. The adviser must also review the company's latest audited financial statements and internal control report.
• The adviser itself, as a last resort. If no permitted custodian is available for a given asset — determined before custody starts and re-checked every quarter — the adviser may hold it. Peirce called this "shelf-custody" rather than true self-custody, since it means the adviser acting as custodian, not the investor holding keys.

What conditions apply to adviser self-custody?

According to the proposing release as summarized by Faegre Drinker and Lowenstein Sandler, an adviser holding client crypto would have to:

• document its expertise in safeguarding each specific asset;
• maintain private-key management systems, reviewed at least annually, with every transaction approved by at least two authorized people;
• hold each client's crypto at addresses that contain only that client's assets;
• manage cybersecurity risk and review those controls at least once a year;
• obtain an internal control report from an independent public accountant within six months of starting, then annually;
• send account statements to clients at least quarterly;
• agree in writing with each client that the crypto is treated as a "financial asset", which brings extra protection under state commercial law;
• move the assets to a permitted custodian as soon as reasonably practicable once one becomes available.

A regulated fund could rely on its adviser's self-custody only if the fund's board reviews the adviser's written explanation of why no custodian is available, initially and every quarter, and determines at least annually that the assets would get reasonable care. Commissioner Mark Uyeda pointed out that adviser custody creates a conflict of interest and that fiduciary duties still apply in full.

Key facts

What does it mean for institutional money in crypto?

The practical bottleneck for many advisers was not demand but custody. Industry groups such as the Digital Chamber told the SEC in 2025 that some advisers turned down token allocations or asked portfolio companies to hold tokens until a custodian appeared. If adopted, the rule would give advisers a documented, auditable path to hold a broader set of assets, and could widen the pool of custodians beyond large banks to specialized trust companies.

That does not mean an immediate wave of inflows. The rule must survive the comment period and a final vote, and many advisers will wait for the final text. The proposal also covers only crypto assets that are funds or securities for custody-rule purposes, so its reach depends on how assets are classified. It sits alongside other moves by the SEC and CFTC to set crypto rules under existing authority after the CLARITY Act failed in the Senate, including the recent SEC guidance on token buybacks.

Custodial vs non-custodial: what changes for an ordinary user?

Directly, nothing: the proposal regulates advisers and funds, not individuals or exchanges. If you hold crypto through a crypto ETF or an advised account, your coins sit with a custodian chosen by the fund or adviser, and these rules would govern how that custodian is picked and checked. If you hold coins in your own wallet, you control the keys and no custody rule applies.

The trade-off stays the same. Custodial holding gives you a regulated intermediary, statements and, for funds, a board and auditors — but you rely on that intermediary's security and solvency. Recent incidents such as the Bitget hot-wallet hack show the risk on the exchange side. Non-custodial holding removes the intermediary but puts all key management on you. Peirce explicitly said true self-custody by investors should stay protected.

Practical checklist for crypto holders

1. Know who holds your keys. For each place you keep crypto — exchange, ETF, adviser, wallet — write down whether you or a third party controls the private keys.
2. For funds and advisers, ask about the custodian. Is it a bank, a broker-dealer, a state trust company or the adviser itself? Are client assets segregated?
3. Do not leave large balances on exchanges. Exchange accounts are not covered by this proposal; withdraw to a wallet you control when you are not trading.
4. Secure your own wallet properly. Hardware wallet, offline seed backup and address checks — see our guide to self-custody security.
5. Swap without handing over custody. Non-custodial exchangers send coins straight to your address. You can compare rates on changerella.com or swap through the Changerella app, which routes the exchange without an account.
6. Follow the final rule. Proposals often change; check the SEC docket after the December 7 deadline.

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