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- The SEC proposed tailored crypto custody rules.
- Advisers could self-custody assets in certain cases.
- State trust companies could serve as crypto custodians.
- The proposal enters a 60-day comment period.
The U.S. Securities and Exchange Commission has proposed a new framework for crypto custody that could give investment advisers and regulated funds alternatives when traditional custodians cannot support a digital asset.
Announced Oct. 1, the proposal covers registered investment advisers, registered investment companies and business development companies. It introduces rules and amendments under the Investment Advisers Act of 1940 and Investment Company Act of 1940, while also addressing adviser audits and broker-dealer custody services.
The biggest change is a pathway for advisers to self-custody crypto under certain circumstances, alongside formal recognition of state trust companies as potential custodians.
SEC Targets a Gap in Traditional Custody
Current custody rules were largely designed around conventional financial assets held by banks, broker-dealers and other permitted custodians.
Crypto creates a different problem. A newly launched digital asset may exist for months before an institutional custodian develops the infrastructure to support it.
SEC Chair Paul Atkins identified that lag as one reason for the proposal. He said current rules under the two investment laws predate the internet and were designed primarily around traditional assets. SEC
Under the proposed framework, third-party custody would remain available, but advisers and funds would gain additional routes:
- Permitted third-party custody: An external institution continues to safeguard assets independently from the investment adviser.
- State trust company custody: Eligible state-chartered trust companies could custody crypto for advisers and regulated funds.
- Adviser self-custody: Advisers could hold crypto directly under specified circumstances and subject to regulatory safeguards.
The SEC is therefore expanding the available custody architecture rather than replacing the traditional model.
How the Three Custody Routes Differ
The practical difference is who controls the assets and where the regulatory burden sits.
| Route | Asset Control | Main Role | Key Constraint |
|---|---|---|---|
| Third Party | External custodian | Independent safeguarding | Provider must support the asset |
| State Trust | State-chartered institution | Specialized custody route | Must meet applicable conditions |
| Self-Custody | Investment adviser | Alternative where external custody is unavailable | Crypto-specific safeguards apply |
Atkins had previewed the policy direction in September, saying self-custody was necessary because qualified third-party custodians did not yet exist for too many assets.
The SEC has not framed one specific technology, such as multisignature or multi-party computation wallets, as the universal custody solution. Those technologies have appeared in industry proposals submitted to the
Commission, but they should be distinguished from SEC requirements.
State Trust Companies Move Toward Formal Recognition
State trust companies already entered the SEC’s crypto custody framework before the latest proposal.
In September 2025, SEC staff issued no-action relief allowing registered advisers and regulated funds, subject to conditions, to maintain certain crypto assets with state-chartered trust companies. Commissioner Hester Peirce said the action addressed uncertainty over whether those institutions could qualify under existing custody provisions.
The new proposal moves that issue toward formal Commission rulemaking.
The change could expand the institutional custody market, although it does not automatically qualify every state-chartered crypto custodian. Eligibility will depend on the eventual rules and the regulatory status of each institution.
The approach also remains contested inside the SEC. Commissioner Caroline Crenshaw argued in 2025 that state trust companies can operate under different oversight, examination and insolvency regimes than federally supervised banks, potentially providing weaker protections in some cases.
That disagreement makes the final conditions for state trusts one of the key issues to watch during rulemaking.
Self-Custody Could Broaden Available Crypto Strategies
The practical impact could be greatest outside assets such as Bitcoin and Ether, where institutional custody infrastructure is already well developed.
If an adviser identifies an otherwise permissible crypto investment but cannot find an appropriate third-party custodian, the proposed self-custody route could provide another option. Atkins specifically pointed to the delay between deployment of new crypto assets and the arrival of custodial support.
Custody permission would not amount to SEC approval of an asset. Advisers and funds would still face separate obligations involving fiduciary duties, securities classification, valuation, liquidity and portfolio restrictions.
The proposal also updates financial statement audit requirements for registered advisers and rules governing broker-dealer custodial services for regulated funds. SEC
The Rule Is Not Yet in Force
The framework remains a proposal.
SEC will accept comments for 60 days after the proposing release is published in the Federal Register, after which the Commission can modify the rules before considering final adoption. SEC
The comment process will determine how far the new custody options extend and what conditions advisers and state trust companies must meet. For the institutional crypto market, those details will decide whether self-custody becomes a practical alternative or remains a specialized option used mainly when conventional custody infrastructure is unavailable.
