SEC proposes conditional self-custody for crypto advisers

The Securities and Exchange Commission proposed a crypto custody framework on Oct. 1, 2026, that would let registered investment advisers and regulated funds use conditional self-custody or state trust companies to hold some assets. The proposal matters because it sets out alternatives for cases where a qualified custodian is unavailable. The SEC’s announcement says the changes would apply under the Investment Advisers Act and Investment Company Act. They cover client crypto funds and securities held by advisers, and crypto securities and similar investments held by regulated investment companies and business development companies.

When could an adviser hold a client’s crypto itself?

Under the proposal, an adviser could self-custody a crypto asset only after determining, following due inquiry, that no qualified custodian will maintain it. That determination would have to be recorded in writing and revisited at least quarterly. If a qualified custodian later became available, the adviser would have to move the asset there as soon as reasonably practicable.

Crypto custody turns on control of private keys: whoever can use the keys can move the assets. A key is like the only key to a safe. The SEC’s proposed rule would require an adviser using self-custody to show it has expertise safeguarding each asset and systems to protect it. Those systems would need to cover private-key management, require at least two people to authorize transactions, and keep each client’s assets in separate blockchain addresses. The proposal also calls for cybersecurity controls, an annual independent accountant’s internal-control report and quarterly account information for affected clients, according to the SEC’s proposed rule.

What would state trust companies have to show?

State trust companies could serve as custodians for crypto assets and related cash under the proposal. Advisers and funds would need to check that the company is authorized by its state to provide crypto custody and has written safeguards for private keys and cybersecurity. The SEC proposal also calls for advisers and funds to review the trust company’s audited annual financial statements before hiring it and each year afterward.

This is a proposed framework, not a rule currently in force. Bloomberg Law reported that the SEC issued a 760-page proposal and would accept public comments for 60 days after publication in the Federal Register. The SEC’s rule page gives the same comment-period trigger, so the deadline depends on that publication date. The agency is asking for feedback before it decides whether to adopt a final rule.