The U.S. Securities and Exchange Commission has proposed a new framework that would give registered investment advisers and regulated funds a conditional route to self custody crypto assets, while also allowing state trust companies to serve as custodians.
The proposal, announced October 1, is designed to address how crypto assets can be held under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. It would also update existing custody, audit, reporting and recordkeeping requirements for advisers and regulated funds.
SEC Chairman Paul Atkins said the proposal is intended to address a regulatory gap that has become more significant as institutional demand for digital assets has grown.
“The proposal would provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before.”
The proposal is not yet a final rule. The SEC will accept public comments for 60 days after the proposing release is published in the Federal Register.
KEY TAKEAWAYS
- Investment advisers and regulated funds could self custody crypto under specified conditions.
- State trust companies could provide custody services for client and fund crypto assets.
- The proposal replaces a withdrawn 2023 approach with a crypto specific custody framework.
- Advisers would face additional requirements around expertise, security controls and oversight when self custody is used.
- The SEC is also proposing broader updates to custody, audit, reporting and recordkeeping requirements.
SEC SETS CONDITIONS FOR SELF CUSTODY
The proposal does not create unrestricted self custody for investment advisers. Instead, an adviser would need to meet specific conditions before holding client crypto assets itself. One important requirement is that the adviser determine that an eligible third party custodian is not available for the particular crypto asset. That determination would need to be revisited periodically. The framework would also require advisers using self custody to demonstrate appropriate expertise and maintain safeguards around private keys and transactions. The SEC proposal includes controls intended to reduce the risk of unauthorized transfers and misappropriation.
For regulated funds, additional oversight would apply, including involvement from the fund’s board. SEC Commissioner Hester Peirce described the proposal as a significant change from previous efforts and emphasized that the framework concerns advisers acting as custodians for client assets, rather than individuals simply holding their own cryptocurrency. That distinction is important because the proposal is aimed at the institutional custody obligations imposed on advisers and funds, not at establishing a general consumer right to self custody.
STATE TRUST COMPANIES GET A CLEARER ROUTE
The SEC would also recognize state trust companies as potential custodians for crypto assets held by investment advisers and regulated funds. The proposed framework would require advisers and funds to conduct due diligence on these custodians and examine areas such as authorization, financial condition, internal controls and segregation of client assets.
The change addresses a practical problem facing institutions that want to offer crypto investment strategies but may not have access to a custodian that fits existing federal requirements. The SEC said the proposal would also update rules covering financial statement audits for registered investment advisers and broker dealer custody arrangements used by regulated funds.
A REVERSAL FROM THE SEC’S 2023 APPROACH
The new proposal represents a different direction from the SEC’s 2023 custody proposal, which would have extended custody requirements across advisory client assets and faced criticism over the availability of compliant crypto custodians. That earlier proposal was withdrawn in June 2025. The SEC’s latest approach instead creates provisions specifically addressing crypto custody while also modernizing portions of the broader custody framework.
The commission had already taken interim steps toward crypto custody clarity. In September 2025, SEC staff issued a no action position involving certain state chartered trust companies. The new proposal would move the issue from staff guidance toward formal rulemaking. The SEC’s latest action is also part of a broader series of crypto regulatory initiatives. The commission has recently advanced its Innovation Exemption and proposed Regulation Crypto Assets, while the Commodity Futures Trading Commission has separately moved forward with crypto asset rulemaking.
CONCLUSION
The SEC’s proposal would give investment advisers and regulated funds more clearly defined options for holding crypto assets, including conditional self custody and custody through state trust companies. However, the framework remains a proposal rather than an effective rule. Its requirements will now face public scrutiny during the 60 day comment period before the SEC considers whether and how to finalize the framework.
For institutional crypto markets, the significance lies in the attempt to replace uncertainty around custody with specific requirements governing who can hold digital assets, how those assets must be protected and what oversight advisers and funds must maintain.
