On 1 October 2026, the US Securities and Exchange Commission (US SEC) proposed new rules governing crypto asset custody by registered investment advisers and regulated funds. The proposal would permit conditional self-custody of crypto assets and allow state trust companies to provide custodial services, subject to safeguards. It would also modernise custody requirements under the Investment Advisers Act of 1940 and Investment Company Act of 1940. Proposed changes address financial statement audits, broker-dealer custody, recordkeeping and regulatory disclosures. The framework seeks to accommodate crypto asset investment strategies while maintaining protections against loss, theft and misappropriation. The SEC published the proposing release in the Federal Register on 6 October 2026. Public comments must be submitted by 7 December 2026.1
SEC Proposes Tailored Regulatory Framework for Crypto Asset Custody
The SEC has proposed amendments intended to address difficulties investment advisers and regulated funds encounter when safeguarding crypto assets under existing federal securities laws.
The current custody rules were principally developed for traditional financial assets. They generally require investment advisers and regulated funds to maintain covered assets with specified categories of custodians.
However, according to the SEC, permitted custodians may not be available for certain crypto assets. Existing custodians may also lack the infrastructure to support newer or less established digital assets.2
SEC Chairman Paul S. Atkins stated:
"Since the advent of Bitcoin in 2008, the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure."
Chairman Atkins explained that the proposal seeks to provide a compliant custody pathway while addressing uncertainty associated with existing requirements.
The proposed framework would operate under both the Investment Advisers Act and the Investment Company Act. Its provisions distinguish between the custody obligations applicable to investment advisers and those governing regulated funds.
SEC Proposes Conditional Self-Custody of Crypto Assets
A central feature of the proposal is the introduction of a conditional self-custody framework.
Under the proposed amendments, registered investment advisers could maintain client crypto assets in self-custody where specified conditions are satisfied.
The adviser would first need to determine that a permitted custodian is unavailable for the relevant crypto asset. This determination would be required before commencing self-custody and quarterly thereafter.3
The proposal would also require advisers to establish and maintain safeguarding systems addressing risks of loss, theft, misuse and misappropriation.
These systems would need to address private key management and require joint authorisation of crypto asset transactions by at least two people.
Additional safeguards would include:
- Documented expertise in safeguarding each crypto asset.
- Separate crypto asset addresses for each client's holdings.
- Cybersecurity controls and annual effectiveness reviews.
- Independent accountant internal control reports within six months of commencing self-custody and annually thereafter.
- Account statements delivered to affected clients at least quarterly.
- Written agreements treating self-custodied crypto assets as financial assets for applicable state law protections.
The proposed arrangements would therefore not create an unrestricted right of self-custody. They would establish an exception subject to continuing operational, cybersecurity and independent assurance requirements.
Registered Investment Funds Could Use Adviser Self-Custody
The SEC also proposes a new custody rule under the Investment Company Act for regulated funds.
Registered investment companies and business development companies could maintain crypto assets through their investment advisers, provided the advisers comply with the proposed self-custody requirements.3
The regulated fund's board would have additional oversight responsibilities.
These would include reviewing the adviser's written determination concerning the unavailability of a qualified custodian, initially and quarterly thereafter.
Before the arrangement begins, and annually thereafter, the board would also need to determine that the crypto assets would receive reasonable care under the proposed custody arrangement.
The proposal thus places oversight responsibilities on fund boards while allowing regulated funds access to a broader range of crypto asset investment strategies.
State Trust Companies Could Serve as Crypto Asset Custodians
The SEC proposes to permit state trust companies to custody client and regulated fund crypto assets, subject to specified conditions.
Under the current framework, whether a particular state trust company satisfies the statutory definition of a bank can require an assessment of state and federal law.
The proposed amendments would create an express pathway for qualifying state trust company custody arrangements.4
Before appointing a state trust company, and annually thereafter, an adviser or regulated fund would need a reasonable basis, following due inquiry, to believe that the company:
- Is authorised by the relevant state banking authority to provide crypto asset custody.
- Maintains appropriate written safeguarding policies and procedures.
- Has provided its most recent annual audited financial statements for review.
- Has provided its most recent internal control report for review.
Client and regulated fund crypto assets would also need to remain segregated from the state trust company's proprietary assets.
The proposal would therefore expand potential custody arrangements without dispensing with due diligence and asset protection requirements.
SEC Proposes Changes to Investment Adviser Custody Requirements
Beyond crypto asset custody, the SEC proposes broader modernisation of the investment adviser custody rule.
Existing Rule 206(4)-2 would be redesignated as Rule 223-1 under the Investment Advisers Act.5
The proposed amendments would address several existing custody compliance requirements.
Discretionary trading authority: The proposal would specify circumstances in which authorised discretionary trading authority does not trigger custody rule requirements.
Independent accountant requirements: The SEC proposes removing the requirement that accountants performing services under the custody rule be registered with, and regularly inspected by, the Public Company Accounting Oversight Board.
Financial statement audits: The proposal would revise certain audited financial statement delivery deadlines for pooled investment vehicles, including funds of funds.
Standing letters of authorisation: A proposed exception would address independent verification requirements where custody arises solely through a standing letter of authorisation.
Inadvertent custody: The amendments would establish an exception for specified circumstances involving inadvertent custody of client funds or securities.
These amendments are intended to address existing industry practices and custody compliance arrangements, independently of the crypto-specific provisions.
Broker-Dealer Custody Rules for Regulated Funds Would Be Modernised
The SEC also proposes amendments to the Investment Company Act custody framework.
The changes would remove certain existing conditions applicable to broker-dealer custody arrangements.
The proposal would also rescind a rule concerning free cash accounts that the SEC describes as no longer used.5
Additionally, the amendments would clarify the application of Investment Company Act custody rules to business development companies.
These changes form part of the Commission's broader effort to modernise custodial arrangements for regulated investment funds.
SEC Proposes Crypto Asset Recordkeeping and Disclosure Changes
The proposal would amend recordkeeping obligations under both the Investment Advisers Act and Investment Company Act.
The SEC proposes allowing records maintained and preserved on crypto networks to satisfy applicable recordkeeping requirements, subject to specified conditions.6
The proposal would also amend Form ADV and Form N-CEN to collect additional information concerning crypto asset custody and tokenised fund shares.
These amendments would provide the SEC with further information about custody arrangements involving digital assets.
For investment advisers and regulated funds, the proposed changes would require consideration of how custody arrangements are documented and disclosed, alongside the safeguarding obligations themselves.
SEC Seeks Public Comments on Crypto Custody Proposal
The proposed rules were published in the Federal Register on 6 October 2026.
The public comment period closes on 7 December 2026.1
Comments should identify File No. S7-2026-35 and may be submitted through the SEC's electronic comment system or by email to rule-comments@sec.gov.
The SEC's proposing release also examines decentralised finance, crypto asset trading and other issues associated with applying custody requirements to digital assets.
Market participants may therefore consider the proposed self-custody conditions, state trust company eligibility and broader custody modernisation provisions when preparing submissions.
Regulatory Note: Implications for Investment Advisers, Funds and Crypto Custodians
The SEC's proposal represents a potential change in how registered investment advisers and regulated funds may custody crypto assets under federal securities laws.
Its immediate significance lies in the proposed alternatives to existing custodial arrangements.
First, advisers could use self-custody where a permitted custodian is unavailable, subject to extensive safeguards and independent assurance.
Second, state trust companies could serve as custodians where the proposed authorisation, due diligence, financial reporting and asset segregation conditions are satisfied.
Third, the Commission proposes modernising existing custody requirements, including aspects of audits, broker-dealer custody, recordkeeping and regulatory disclosures.
The distinction between the two statutory frameworks remains important. The Advisers Act custody rule generally addresses client funds and securities. The Investment Company Act custody rules apply to regulated funds' securities and similar investments.
The proposed amendments should not be interpreted as making every crypto asset a security or subjecting all crypto asset custody arrangements to identical federal requirements.
For registered investment advisers, the principal questions concern custodian availability, safeguarding expertise, private key governance and cybersecurity controls.
For regulated funds, the proposed board oversight responsibilities introduce additional considerations concerning custody arrangements and investor protection.
For state trust companies, the proposal may create further opportunities to provide crypto asset custodial services, subject to the proposed conditions.
The proposal remains subject to public consultation and possible revision. No new custody permissions or obligations arise merely from its publication.
The SEC's final approach will determine whether, and under what conditions, these custody arrangements become available under the federal securities laws.
Footnotes
- US Securities and Exchange Commission, Adviser and Regulated Fund Custody Rules; Crypto Custody Rules, Release Nos. IA-7023 and IC-36353, File No. S7-2026-35, published in the Federal Register on 6 October 2026, pp. 1–2. The comment deadline is 7 December 2026.
- US Securities and Exchange Commission, Investment Adviser and Regulated Fund Custody Rules; Crypto Custody Rules, Fact Sheet, 1 October 2026, pp. 1–2; SEC, Release No. IA-7023, Section I.A, pp. 10–25.
- SEC, Release No. IA-7023, Sections II.A and II.B, pp. 39–178; SEC Fact Sheet, pp. 2–3. These provisions address adviser self-custody, safeguarding systems, internal controls and regulated fund board oversight.
- SEC, Release No. IA-7023, Section II.C, pp. 179–202; SEC Fact Sheet, p. 3. The proposal addresses state trust company eligibility, initial and annual determinations, financial statements, internal control reports and segregation of assets.
- SEC, Release No. IA-7023, Sections II.F and II.G, pp. 216–326; SEC Fact Sheet, pp. 3–4. These sections address Investment Company Act and Investment Advisers Act custody rule modernisation.
- SEC, Release No. IA-7023, Sections II.H and II.J, pp. 327–396; SEC Fact Sheet, p. 4. These provisions address recordkeeping, Form ADV, Form N-CEN and related disclosure requirements.
- US Securities and Exchange Commission, ‘SEC Proposal Would Address How Investment Advisers and Funds Can Custody Crypto Assets Under the Federal Securities Laws’, Press Release No. 2026-100, 1 October 2026.
- US Securities and Exchange Commission, Adviser and Regulated Fund Custody Rules; Crypto Custody Rules, File No. S7-2026-35, public comment page: https://www.sec.gov/comments/s7-2026-35/adviser-regulated-fund-custody-rules-crypto-custody-rules.
