preferred on
Points of Focus
- The SEC proposed rules on Oct. 1 for how advisers and funds custody crypto assets.
- Advisers could self-custody crypto assets only when no permitted custodian is available to hold them.
- State-chartered trust companies would qualify as crypto custodians under conditions on audits and segregation.
The US Securities and Exchange Commission (SEC) proposed rules on Oct. 1 that would set out how registered investment advisers and regulated funds can hold crypto assets under federal securities law.
TODAY 🚨: The Commission proposed new rules and amendments to provide a tailored framework for the custody of crypto assets for registered investment advisers and regulated funds, i.e. registered investment companies and business development companies. pic.twitter.com/MP16NmQ6og
— U.S. Securities and Exchange Commission (@SECGov) October 1, 2026
The package amends custody rules under the Investment Advisers Act and the Investment Company Act and is published as a proposed release IA-7023.
SEC Chair Paul Atkins said it creates “a compliant pathway where none existed before.”
SEC crypto custody proposal for investment advisers and funds
The proposal defines a crypto asset as value recorded on a cryptographically secured distributed ledger, a definition the release says aligns with the digital asset definition in the GENIUS Act.
Commissioner Mark Uyeda said the SEC’s 2023 safeguarding proposal pointed advisers to custodians that were largely unavailable or unwilling to serve them. The release notes that the SEC withdrew that proposal on June 12, 2025, and rescinded Staff Accounting Bulletin 121 in January 2025.
Adviser self-custody conditions for crypto assets
Under proposed rule 223-1(b)(7), an adviser could hold crypto assets itself only when a permitted custodian is unavailable. The adviser would make a written determination at the outset and every quarter, and it would need safeguarding expertise for each asset.
Private key management would require joint authorization by at least two people, and the adviser would commission an annual cybersecurity review. Internal control reports would be due within six months and annually after that.
Clients would receive account statements at least quarterly that show the crypto network address, and a written agreement would treat each asset as a financial asset under state law. SEC Commissioner Hester Peirce said she prefers the term “shelf-custody” for this arrangement and that regulators should defend investors’ right to self-custody.
State trust companies as crypto custodians
Proposed rules 223-1(d)(13)(v) and 17f-8(b) would let advisers and funds use a state trust company as a custodian when they have a reasonable basis, after due inquiry, that the company is authorized by its state banking authority and maintains written safeguarding policies.
The trust company would supply audited financial statements and internal control reports at the outset and annually, and client crypto would be segregated from the company’s assets.
The approach builds on a Division of Investment Management no-action letter dated Sept. 30, 2025, which law firm Sidley describes as conditioned on initial and annual assessments, safeguarding policies, audited financials with SOC-1 or equivalent reports, client disclosure, and no rehypothecation.
Crypto custody rules for registered funds and industry context
For registered funds, the board would determine each year that an asset would receive reasonable care if the fund held it itself under proposed rule 17f-9(b)(1)(ii).
The release also extends Rule 17f-1 to all registered broker-dealers, rescinds Rule 17f-3, adds business development company references, and creates an exception for authorized discretionary trading in proposed Rule 223-1(b)(9). An SEC fact sheet adds that records kept on crypto networks may satisfy recordkeeping duties.
The SEC’s economic analysis puts global crypto market capitalization at about $2.7 trillion in May 2026, up from $800 billion at the start of 2021, and says about 9.2% of US adults hold crypto.
US spot Ether (ETH) exchange-traded funds reported $17.60 billion in net assets on Sept. 30, 2026, a measure of regulated crypto exposure that sits alongside the custody question now before advisers and registered funds. Comments are due 60 days after the proposal is published in the Federal Register.
Share
Most read articles
