The Securities and Exchange Commission has proposed a new framework governing how registered investment advisers and regulated funds can custody certain crypto assets, creating potential pathways for adviser self-custody and the use of state trust companies. According to the SEC’s official October 1 proposal, the rules are intended to modernize custody requirements while expanding the options available for holding crypto within federally regulated investment structures. The proposal remains subject to public comment and has not become a final rule.
The changes would operate under the Investment Advisers Act of 1940 and Investment Company Act of 1940. Their scope is narrower than all crypto holdings: for advisers, the proposed custody amendments apply to client crypto assets that are funds or securities, while regulated-fund rules cover crypto securities and similar investments. The SEC is therefore creating a custody framework for assets already falling within relevant adviser or fund custody requirements, not imposing one universal custody regime on every crypto asset.
Self-Custody Comes With Strict Conditions
The most significant change would allow registered advisers to maintain eligible client crypto assets themselves when a suitable qualified custodian is unavailable. Before using that option, an adviser would need a reasonable basis, after due inquiry, for concluding that no qualified custodian will maintain the particular asset and would have to repeat that assessment at least quarterly. “Self-custody” in the proposal means custody by the adviser on behalf of clients, rather than investors personally controlling their own wallets.
The exemption would carry additional operational requirements. Advisers would need appropriate safeguarding expertise, systems and cybersecurity controls, annual reviews and independent internal-control reporting. The first internal-control report generally would be required within six months of beginning self-custody and subsequent reports at least annually while the arrangement continues. The proposal therefore treats adviser custody as an exception accompanied by a substantial control framework, not as unrestricted permission to replace third-party custodians.
Regulated funds would face another layer of governance. Their boards, including a majority of independent directors, would need to review the adviser’s determination that no qualified custodian is available on a quarterly basis and evaluate whether the custody arrangement provides reasonable care. Board oversight makes fund self-custody structurally different from an adviser simply deciding to hold private keys internally.
The proposal arrives as custody has become increasingly important to the SEC’s broader onchain-market framework. Questions around control of private keys have already shaped the treatment of tokenized securities held by regulated intermediaries, while separate initiatives have opened conditional routes for tokenized U.S. stock trading. Custody is increasingly being addressed alongside tokenization and trading rather than as an isolated regulatory problem.
State Trust Companies Gain a Separate Custody Path
The SEC would also permit advisers and regulated funds to use eligible state trust companies for crypto custody under a new set of conditions. Before engaging one, and annually thereafter, the adviser or fund would need a reasonable basis for believing that the company is authorized by its state banking regulator and maintains adequate policies covering asset safeguarding, private-key management and cybersecurity. State trust companies would become permitted crypto custodians under this framework, but they would not automatically be redesignated as qualified custodians under existing law.
Additional safeguards would include reviewing audited U.S. GAAP financial statements and relevant internal controls, reflecting the SEC’s concern that state trust regulation varies across jurisdictions. The framework attempts to broaden custody competition while placing responsibility on advisers and funds to assess the financial and operational resilience of the provider they select.
The custody proposal is part of a wider sequence of U.S. digital-asset policy changes, including the SEC’s earlier no-action relief supporting a DTCC tokenized Treasury pilot on Canton Network and broader SEC-CFTC coordination on crypto oversight. The custody rules would add another piece to that evolving framework, but their final form can still change materially through the rulemaking process. Public comments remain open for 60 days following publication of the proposing release in the Federal Register.
Jack Reynolds is SatoshiPick’s infrastructure mind. Based in Denmark, he follows Bitcoin, Ethereum, Layer 1 networks, stablecoins and DeFi with a practical question always in the background: does this actually make crypto work better?
His articles focus on the systems beneath the headlines: settlement rails, protocol upgrades, stablecoin usage, DeFi coordination and the regulatory limits around them. Jack avoids turning technical coverage into a maze. He explains what is live, what is still experimental and why the difference matters.