The SEC voted on October 1, 2026, to propose a new crypto custody rule for investment advisers and regulated funds. The proposal runs 760 pages and amends both the Investment Advisers Act of 1940 and the Investment Company Act of 1940. It targets registered investment advisers, registered investment companies, and business development companies. Chairman Paul Atkins framed the issue bluntly. “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,” he said. “Unfortunately, our rules and regulations have not kept pace.” The agency assigned the proposal file number S7-2026-35, and a 60-day public comment period opens once the release publishes in the Federal Register.
The Commission’s proposal would modernize custody rules and expand investor choice by removing regulatory barriers that inhibit the adviser’s ability to provide crypto-related investment advice.
— U.S. Securities and Exchange Commission (@SECGov) October 1, 2026
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Why the Old Custody Rule Doesn’t Fit Crypto
The Advisers Act custody rule requires advisers to park client funds and securities with a qualified custodian. However, that framework predates blockchain technology entirely. Atkins noted the rules “predate the internet” and were built only with traditional assets in mind. As a result, advisers holding newer or smaller crypto tokens often find no custodian willing or able to accept them. Atkins called this timing mismatch “a substantial problem,” since custodial capabilities can lag an asset’s deployment by many months. Meanwhile, crypto custody depends on controlling private cryptographic keys rather than holding a paper certificate. Staking, bridging, and smart-contract activity further complicate who legally holds an asset at any given moment.
Conditional Self-Custody, Not a Free Pass
The proposal’s most notable change lets advisers hold crypto assets themselves under tightly defined conditions. Importantly, this applies only when no qualified custodian exists for a specific asset. An adviser must document that absence before beginning self-custody and reassess the determination every quarter. If a qualified custodian later becomes available, the adviser must transfer the assets over as soon as practical. The proposal also requires at least two authorized individuals to approve any transfer of a self-custodied crypto asset. For regulated funds, the fund’s board must oversee the entire arrangement. Commissioner Hester Peirce drew a sharp distinction around the term itself. “Regulators should zealously protect investors’ right to self-custody and not attempt to force investors to custody their assets with someone else,” she said. In this context, though, self-custody means the adviser acts as custodian, not that individual clients control their own keys.
State Trust Companies Join the Custodian Pool
Beyond self-custody, the proposal widens the field of eligible custodians significantly. State-chartered trust companies could now qualify as custodians for both advisory client and fund crypto holdings. To qualify, a trust company needs explicit authorization from its state regulator to provide crypto custody services. It must also maintain reasonable procedures against loss, theft, and misappropriation. Additionally, the rule requires audited financial statements, internal-control reporting, and strict segregation of client assets from the firm’s own holdings. This expansion matters because crypto custody often sits outside traditional bank and broker-dealer structures. Several firms already offering crypto custody through state charters could now gain clear federal recognition under the Advisers Act.
What Comes Next
This custody proposal follows an earlier effort, Regulation Crypto Assets, that the SEC floated in August 2026. Together, Atkins described the two initiatives as part of “a comprehensive crypto asset regulatory approach.” He also linked the push to broader policy goals, saying the agency wants to “cement the United States as the crypto capital of the world.” Industry reaction arrived quickly. NovaDius president Nate Geraci pointed to the SEC’s fast regulatory pace as a sign lawmakers may regret missing their window to pass the Clarity Act. For now, advisers and funds have 60 days after Federal Register publication to submit comments. Atkins signaled more proposals are coming, suggesting this custody framework is one piece of a larger buildout still underway.
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