SEC Proposes First Dedicated Crypto Custody Framework for Registered Advisers and Funds
SEC Proposes First Dedicated Crypto Custody Framework for Registered Advisers and Funds #
The US Securities and Exchange Commission voted on 1 October 2026 to propose a regulatory framework governing how registered investment advisers and regulated funds may custody crypto assets on behalf of clients. The agency said the proposal addresses a compliance gap that has persisted since digital assets became widely traded.
The proposal, filed under docket number S7-2026-35, amends rules under both the Investment Advisers Act of 1940 and the Investment Company Act of 1940. It covers registered investment advisers, registered investment companies, and business development companies. According to the SEC’s press release, the rules aim to modernise custody standards and “remove regulatory barriers that inhibit the adviser’s ability to provide crypto-related investment advice.”
The proposal makes two structural changes. State-chartered trust companies would be recognised as qualified custodians eligible to hold crypto assets for adviser clients and regulated funds, expanding the pool of permissible institutions beyond federally chartered banks. Advisers would also be permitted to self-custody client crypto, meaning the adviser itself holds the private keys, but only when no permitted custodian can accommodate a given asset. In that case, the adviser would be required to document that no alternative is available and conduct quarterly reviews of those holdings at minimum. Cryptocurrency exchanges are explicitly excluded from the permitted-custodian category.
Commission Chair Paul Atkins described the rulemaking as a long-overdue correction, stating that the crypto market has grown into a multi-trillion-dollar asset class while the SEC’s custody rules “have not kept pace.” The proposal, he said, replaces uncertainty with a compliant pathway where none previously existed. Commissioner Hester Peirce, who led the SEC’s inaugural Crypto Task Force and is departing the agency this week, also backed the measure. She clarified that adviser self-custody under the proposal differs conceptually from individual investors holding their own keys, with the former applying to institutions acting as custodians rather than retail participants.
The proposal also updates financial-statement audit requirements for registered investment advisers and addresses broker-dealer custodial services for regulated funds. A 60-day public comment period will open following publication in the Federal Register, after which the SEC may revise or finalise the rules. No implementation date has been set. The proposal comes as broader congressional crypto legislation, including the Clarity Act, has stalled in the Senate, leaving agency-level rulemaking as the primary vehicle for near-term regulatory clarity in the US digital-asset market.
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