The US Securities and Exchange Commission (SEC) has proposed crypto custody rules for investment advisers and regulated funds. They could hold crypto assets at state trust companies or, under narrow conditions, keep custody themselves.
The SEC oversees the US securities market, including investment advisers and regulated funds. Investment advisers are asset managers who invest their clients' money. Under the so-called custody rule, they must hold it with a qualified custodian such as a bank. However, this framework rests on laws from 1940 and targets traditional investments. The agency published the proposal under the Investment Advisers Act and the Investment Company Act on October 1, 2026. SEC Chair Paul Atkins is behind the proposal, but the Commission still has to formally adopt it. According to Atkins, the industry thus gets a compliant custody path for the first time. The 60-day comment period only starts once the proposal appears in the Federal Register, so its end date remains open. Overall, the draft sets out two paths.
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Two SEC crypto custody paths for advisers and funds
State trust companies form the default route. These are trust institutions chartered at the level of a US state. Before hiring one, and every year after that, the adviser must review the company. It needs a reasonable basis to believe that the state banking regulator has authorized the company to provide crypto custody. In addition, the company must maintain written policies that protect crypto assets and cash against theft, loss, misuse and misappropriation. The path is also open to regulated funds, meaning registered investment companies and business development companies.
By contrast, the proposal allows self-custody only as an exception. First, the adviser must determine that no eligible custodian is available for the specific crypto asset. Moreover, it must review this finding every quarter. Consequently, the draft ties self-custody to a gap in the custodian market that the adviser must document on an ongoing basis.
What gets lost here is the precise meaning of the term. In her statement, Commissioner Hester Peirce clarified what the proposal means by "self-custody." It refers to the adviser acting as custodian of client assets. However, the term does not cover investors who control their own crypto assets. For that reason, she would have preferred the term "shelf-custody."
"Regulators should zealously protect investors' right to self-custody and not attempt to force investors to custody their assets with someone else." - Hester Peirce, Commissioner, SEC
Why the old custody rules do not fit crypto
Atkins justifies the proposal by pointing to the age of the framework. In his words, many custody provisions under the two 1940 laws predate the internet. Additionally, since Bitcoin emerged in 2008, the crypto market has grown from a niche into a multi-trillion-dollar asset class. Investors want targeted exposure to this asset class. Yet the custody rules their advisers follow do not fit such assets.
Atkins gets more specific on the practical problem. For newly developed crypto assets, custody infrastructure can lag the launch by many months. As a result, an adviser seeking to hold such a token for clients finds no qualified custodian during this phase. The narrow self-custody exception aims to close exactly this gap.
The proposal matters mainly for asset managers and hedge funds that want to hold Bitcoin directly rather than through ETFs. Until now, the compliant route for many of them ran through an exchange-traded fund whose issuer handles custody. Direct holdings could replace this detour in the future. Likewise, advisers could add new crypto assets without waiting for a custodian. The condition remains that no eligible custodian is available for the asset in question.
From Gensler's safeguarding draft to the Atkins SEC proposal
The proposal marks the provisional end point of a reversal that has spanned three years. Originally, the SEC under then-Chair Gary Gensler proposed a broad safeguarding rule in 2023. It would have effectively pulled crypto assets into the custody rule. Looking back, Peirce criticizes that the draft implied many advisers were already breaking the rules. She also says it made compliant crypto custody look impossible. Finally, in June 2025 the SEC withdrew the draft. Almost all of the 13 other proposals withdrawn alongside it dated from the Gensler era.
At the same time, accounting created a second hurdle. From March 2022, Staff Accounting Bulletin 121 (SAB 121) required custodians to book crypto custody obligations as a liability. They also had to record a corresponding asset on the balance sheet. That deterred banks from holding crypto assets for clients. Only in January 2025 did the SEC rescind the guidance with SAB 122. Since then, the general standards ASC 450-20 or IAS 37, respectively, apply again.
In September 2025, the SEC's Division of Investment Management followed with a no-action letter. In it, staff allowed advisers and registered funds to treat state trust companies as a "bank" under the custody provisions. Among the conditions were authorization by the state regulator, independent audit reports, segregated holdings and no lending without client consent. Still, this staff position had no legal force. Only the new proposal would ultimately anchor the trust path as a binding Commission rule.
SEC acts alone after the Clarity Act fails
The background is a defeat in Congress. In September 2026, the Clarity Act failed a cloture vote in the Senate, 49 to 50, with 60 votes needed. All Democrats and independents present voted against it, as did four Republicans: Collins, Hawley, Moran and Tillis. Tillis voted no for procedural reasons so that he could file a motion to reconsider. The sticking points included open ethics provisions on the president's crypto gains. After the vote, Atkins announced that the SEC would act decisively within its statutory authority.
Later that month, the SEC issued a five-year exemptive order for trading venues with tokenized US stocks. Furthermore, Atkins places the custody proposal alongside tokenization guidance, the classification of securities and the proposed "Regulation Crypto Assets." He has already announced further proposals. Notably, only a staff letter secured the trust path before the proposal. For self-custody by advisers, by contrast, the framework provided no path.
The comment phase comes next. Market participants can submit comments for 60 days once the proposal appears in the Federal Register. Only then will the Commission decide on the final rules. Until then, the 2025 no-action letter remains the governing guidance for the trust path. There is no known withdrawal.
