SEC Proposes Crypto Custody Rules Opening Self-Custody Path for Advisers and Funds
Two weeks after Congress failed to move its crypto market structure bill, the Securities and Exchange Commission has taken on one of the most practical barriers keeping professional money managers out of digital assets: who is allowed to hold the coins.
On Thursday, October 1, the SEC proposed a framework covering how registered investment advisers and regulated funds, meaning registered investment companies and business development companies, can custody crypto assets for clients. The proposal would let state-chartered trust companies serve as crypto custodians and, in limited cases, allow advisers to hold client crypto themselves. It opens a 60-day public comment period once it’s published in the Federal Register.
What the proposal would change
Under today’s rules, advisers that hold client assets generally have to keep them with a “qualified custodian,” a category built around banks, broker-dealers and similar institutions. That has created friction for crypto, where some tokens aren’t supported by any established custodian and where many specialist firms operate under state trust charters.
The SEC’s press release says the package would create a tailored framework for crypto custody, add state trust companies as permitted custodians for client and fund crypto assets, and permit self-custody “under certain circumstances.” It also updates rules on financial statement audits for advisers and on broker-dealer custody services for funds.
The proposal is large. CoinDesk described it as a 760-page document, and it reaches beyond crypto: the existing adviser custody rule would be renumbered as a new Rule 223-1, and the requirement that certain custody-rule accountants be registered with the Public Company Accounting Oversight Board would be dropped.
Self-custody, with conditions
The headline item, adviser self-custody, comes with tight limits. Under the SEC’s proposing release, an adviser would first have to determine in writing, for each asset, that no permitted custodian will hold it, and repeat that check at least every quarter. Cost isn’t an acceptable reason. If a custodian becomes available later, the adviser would have to move the asset as soon as reasonably practicable.
Advisers that self-custody would also need documented expertise for each asset, key management controls, sign-off from at least two designated people for any transfer, separate blockchain addresses for each client, annual cybersecurity reviews and an internal control report from an independent accountant. For regulated funds, the fund board would have to review the adviser’s custodian-availability findings every quarter.
An SEC official told CoinDesk the self-custody scenario would likely be unusual, giving the example of a newly launched token that custodians don’t yet support.
Commissioner Hester Peirce was careful to separate this from what crypto users usually mean by the term. “The proposal uses the term in a way that does not reflect true self-custody by investors,” she said in a statement, adding that “regulators should zealously protect investors’ right to self-custody.” Commissioner Mark Uyeda noted that “state-chartered trust companies have become important participants in the crypto custody ecosystem.”
Why it matters
Custody is one of the less visible but more important pieces of crypto market plumbing. Wealth managers, registered funds and advisers who want to offer clients crypto exposure need a clear, compliant way to hold the assets, and uncertainty about which custodians qualify has kept some on the sidelines. The proposal builds on a September 2025 SEC staff no-action letter on state trust companies, which wasn’t a formal rule. If adopted, the new framework would replace it with binding requirements.
SEC Chairman Paul Atkins said the crypto market has grown from a niche into a multi-trillion-dollar asset class while the agency’s rules haven’t kept pace. He said the proposal would give “investment advisers and funds a compliant pathway where none existed before,” replacing “the grey of uncertainty created by custody rules crafted for a bygone era.”
The timing is significant too. The Senate’s failure to advance the CLARITY Act on September 15 left the regulators as the main source of new crypto rules. According to The Block, Atkins said “more regulatory proposals are on the horizon.” ETF analyst Nate Geraci, president of NovaDius, wrote on X that the SEC was “moving quickly & aggressively” and that “some politicians are going to wish they passed the Clarity Act.”
A smaller commission
CoinDesk reported that with custody, the SEC has now addressed each of the major crypto topics Atkins originally put on its agenda, following its proposed Regulation Crypto Assets in August. The outlet also reported that Peirce, who has led the agency’s Crypto Task Force, is leaving the SEC this week, and that the commission recently lowered its quorum requirement from three commissioners to two.
That leaves the proposal heading into its comment period with a thin bench of commissioners and no statute behind it. Rules adopted by an agency can be revised by a future one, which is part of why the industry wanted Congress to act. For now, though, the custody proposal is the clearest signal yet of how U.S. regulators intend to let traditional asset managers hold crypto, and the comments filed over the next two months will help decide how strict the final conditions are.