What is the SEC crypto custody proposal?
The U.S. Securities and Exchange Commission has proposed new rules that could reshape how registered investment advisers and regulated funds hold certain crypto assets for clients and investors.
The SEC crypto custody proposal, formally titled “Adviser and Regulated Fund Custody Rules; Crypto Custody Rules,” was issued on October 1, 2026, published in the Federal Register on October 6, and is open for public comment until December 7, 2026.
It is important to start with the central point: this is a proposal, not a final rule. It does not create new compliance duties today. The SEC could revise, delay, or abandon parts of it after reviewing public comments.
Still, the proposal matters. It signals how the SEC may seek to apply long-standing custody protections to crypto assets that are client funds or securities. It also offers possible paths for advisers and funds when conventional custodial options are unavailable.
Why this proposal is different from the 2023 custody plan
Some coverage may still refer to the SEC’s 2023 “Safeguarding Advisory Client Assets” proposal. That plan is no longer pending. The SEC formally withdrew it effective June 17, 2025, and said it did not intend to issue a final rule based on that proposal.
The 2026 proposal takes a more targeted approach. For registered investment advisers, it keeps the Investment Advisers Act custody framework focused on client funds and securities. It then addresses crypto assets that fall within those categories.
For registered investment companies and business development companies, often called regulated funds, the proposal addresses crypto securities and similar investments through the Investment Company Act custody framework.
That distinction is significant. The proposal is not a general worldwide rule for every token, wallet, exchange, or business that handles digital assets. It is a U.S. federal securities-law proposal aimed at regulated advisers and funds.
A possible self-custody route for hard-to-custody assets
The most notable potential change is a conditional self-custody option. Under the proposal, an investment adviser could potentially custody client crypto assets itself, including assets held for regulated funds, when a permitted or qualified custodian is unavailable for the particular asset.
This would not be a simple permission to keep client coins in an office wallet. Before using self-custody, and at least every quarter afterward, the adviser would need to make a written determination, based on due inquiry, that no qualified custodian will maintain that specific crypto asset.
The adviser would also need substantial safeguards. These include documented expertise in safeguarding crypto assets, controls for private-key management, and a transaction approval process involving at least two people. Client addresses would need to be segregated rather than mixed together without clear attribution.
The proposal also contemplates cybersecurity controls, annual reviews of whether those controls work, and internal-control reports prepared by an independent public accountant. The first report would be required within six months, followed by annual reports. Advisers would provide quarterly account statements to clients.
A written agreement would also need to treat the crypto asset as a financial asset under applicable state law. This legal detail may sound technical, but it is intended to strengthen a client’s rights if the adviser faces financial trouble or a custody dispute.
For a regulated fund, the fund’s board would have added responsibilities. It would oversee the initial self-custody decision, receive quarterly information, and conduct annual oversight. In practical terms, self-custody could become an option, but one that requires governance, documentation, and ongoing evidence.
State trust companies could gain a clearer role
The proposal could also broaden the pool of available digital asset custodians. It would expressly permit certain state trust companies to custody advisory-client and regulated-fund crypto assets, along with related cash or cash equivalents, if specified conditions are satisfied.
This is not blanket approval for every state-chartered trust company. Before hiring one, and annually afterward, the adviser or fund would need a reasonable basis, after due inquiry, to conclude that the trust company is authorized under state law to provide crypto custody.
The adviser or fund would also need to verify that the trust company has written safeguarding policies and procedures. It would review the trust company’s latest audited financial statements and internal-control report. Client and fund crypto assets would need to remain segregated from the trust company’s own assets.
For smaller advisory businesses, this could matter because the market for institutional-grade crypto custody has not always served every asset or strategy equally. A clearer, conditional pathway for state trust companies could increase choices. But firms would still need to perform real due diligence; calling a provider a “custodian” would not be enough.
Broader changes beyond crypto
The proposal is not only about digital assets. It would modernize several parts of the broader custody system.
For advisers, the SEC would redesignate current Rule 206(4)-2 as proposed Rule 223-1. It would also create or clarify exceptions involving discretionary trading authority, standing letters of authorization, and inadvertent custody. These issues can arise when an adviser has limited authority to move money, even if the adviser does not physically hold client property.
The SEC also proposes changes affecting accountant requirements and pooled investment vehicle audits. For regulated funds, it would update conditions related to broker-dealer custody.
Recordkeeping and reporting would change as well. Crypto-network records could help satisfy recordkeeping requirements only if they contain true, accurate, and current required information. When blockchain data does not show enough detail, firms would need off-chain records to fill the gaps.
Form ADV, the main disclosure filing for investment advisers, would add questions on crypto self-custody. Form N-CEN would gather additional information about fund custody and tokenized funds.
What this could mean for investors and business owners
For retail investors, the proposal could eventually create more visible standards around who controls keys, how transactions are approved, and whether client assets are separated from a firm’s own assets. Those protections are especially relevant in crypto, where a lost private key or an unauthorized transfer can be difficult to reverse.
For small business owners considering a crypto-focused adviser, the practical questions remain simple: Who holds the assets? Is the provider legally authorized to do so? Are assets segregated? What cybersecurity controls exist? And what happens if the custodian fails?
The proposal does not answer every question for every crypto asset. Nor does it replace laws outside the United States. Firms operating internationally may still face local licensing, custody, consumer-protection, anti-money-laundering, and data-security requirements.
What to watch next
The comment period closes December 7, 2026. Market participants, consumer advocates, advisers, funds, custodians, and state regulators may all seek changes to the proposal.
Until the SEC adopts a final rule, the current framework remains in place. Investors should not assume that a new self-custody exception or state-trust-company pathway is already available under federal law.
The larger takeaway is that regulated crypto investing may gain more defined custody options, but only alongside detailed controls and accountability. The SEC’s approach is not to treat crypto custody as ordinary wallet management. It is to place it within a framework designed to protect client assets when regulated advisers and funds are involved.