SEC proposes conditional crypto self-custody for advisers and funds

The SEC proposed a crypto custody framework on Oct. 1 for registered investment advisers and regulated funds, including registered investment companies and business development companies. The SEC’s proposed rule would let them use qualifying state trust companies and, under tighter conditions, hold some crypto assets themselves. It is a proposal, not a final rule; the SEC says comments will be open for 60 days after publication in the Federal Register.

The scope is limited: under the proposed Advisers Act changes, the rules would cover crypto assets that are funds or securities; for regulated funds, they would cover securities or similar investments. The SEC says custody gaps can limit advisers’ ability to invest in certain assets for clients. The Block’s report on the proposal likewise describes the change as a response to assets for which qualified custodians may not be available.

When could an adviser hold crypto itself?

Only after determining that no qualified custodian is available for that particular asset. The SEC’s proposal would require a written, asset-by-asset assessment before self-custody and a reassessment each quarter. The adviser would also have to document its crypto safeguarding expertise and systems, review those systems annually, obtain internal control reports and send clients quarterly account statements.

For a regulated fund, the adviser’s self-custody would also require board oversight. The board would assess whether no qualified custodian is available and whether the adviser could safeguard the asset with reasonable care, then revisit the arrangement annually. That can open a route for an asset a custodian does not support, while placing the safeguarding responsibility and related conflicts with the adviser. The SEC’s conditions address risks it identifies in the proposal, including theft, loss, misuse and cybersecurity failures.

What would state trust companies have to show?

The proposal would add qualifying state trust companies as custodians for crypto assets and related cash. Before appointing one, and annually after, an adviser or fund would need a reasonable basis, after due inquiry, to believe the company is authorized by its state regulator to provide crypto custody and has safeguards addressing private key management and cybersecurity. It would also have to review the company’s audited financial statements.

This adds another third-party option alongside custodians already permitted under existing rules. The SEC’s proposed due diligence requirements give advisers a basis to assess a state trust company, but they also require ongoing review. The SEC says state supervision can vary, which is why the proposal calls for checks on the company’s authorization, controls and financial position.

How does this compare with the earlier SEC proposal?

The new framework follows the SEC’s 2023 proposal to amend the adviser custody rule, which the Commission withdrew in June 2025, according to the 2026 release. The current proposal addresses crypto custody through specific routes for conditional self-custody and state trust companies, alongside changes to reporting and recordkeeping. It would also modernize other custody requirements, including provisions on audits and broker-dealer custody for regulated funds.

The next signals are the Federal Register publication date, which starts the comment period, and the comments on self-custody safeguards and state trust company oversight. The SEC has asked for public input on the proposal; its terms may change before any final rule takes effect.

Sources and documents

• SEC’s proposed rule — sec.gov
• report on the proposal — theblock.co