The SEC has proposed a new framework for how registered investment advisers and regulated funds may safeguard certain crypto assets. The proposal would add two options: advisers could hold some client crypto assets themselves when an eligible outside custodian is unavailable, and advisers or funds could use qualifying state trust companies as custodians. Both routes would come with detailed safeguards.
The proposal is still under review. It is not a final rule, and its conditions could change after public comments. The SEC’s comment period is scheduled to close on December 7, 2026.
When an Adviser Could Hold Crypto Assets
The proposed “self-custody” option would allow an adviser to hold a client’s crypto assets by controlling the private keys needed to access and transact with them. It would apply only when the adviser determines in writing that a permitted custodian is unavailable for the particular asset. The adviser would have to revisit that determination at least quarterly and move the asset to a permitted custodian as soon as reasonably practicable if one becomes available.
An adviser using this option would need expertise in safeguarding each asset and documented systems designed to prevent loss, theft, misuse and misappropriation. Those systems would have to address private-key management, require at least two people to authorize transactions, and keep each client’s assets in blockchain addresses associated only with that client’s assets.
The proposal also calls for cybersecurity controls and annual reviews of their effectiveness. Advisers would need to obtain independent internal-control reports within six months of beginning custody and annually after that. Clients would receive quarterly statements showing the relevant wallet address, network, balances and transactions, with information that lets them compare the statement against on-chain activity. The adviser and client would also have to agree in writing to treat the crypto asset as a financial asset, and the adviser as a securities intermediary, under the applicable state law governing their agreement.
What It Would Mean for Regulated Funds
A registered investment company or business development company could place crypto assets with its adviser under the proposal, provided the adviser meets the self-custody conditions and the fund’s board oversees the arrangement.
Before the adviser takes custody, the board would review the adviser’s written explanation for why no permitted custodian is available and assess whether the arrangement serves the fund’s interests. The board would revisit the custodian-availability report quarterly and review information about the adviser’s safeguarding systems and cybersecurity. The proposal also gives the board an oversight role in assessing whether the assets will receive reasonable care.
A Route Through State Trust Companies
The proposal would recognize qualifying state trust companies as permitted custodians for crypto assets and related cash. Before hiring one, and annually afterward, an adviser or fund would have to determine in writing, after due inquiry, that the company is authorized to provide crypto custody and has implemented safeguards covering private-key management and cybersecurity.
The proposed checks also include reviewing the trust company’s audited financial statements and an independent accountant’s internal-control report. Assets would have to be segregated from the custodian’s own assets. The SEC is asking whether its definition of a qualifying state trust company is appropriately narrow and whether the due-diligence requirements provide enough protection.
What Remains Unsettled
The proposal leaves open practical questions about how advisers should establish that no suitable custodian is available, how quickly assets must be transferred once one becomes available, and whether quarterly reviews are the right interval. It also asks for feedback on the expertise and control standards for adviser-held assets, the scope of board oversight, and the safeguards and reporting required of state trust companies.
The proposal’s reach is limited, too. The SEC says the adviser custody provisions would apply to crypto assets that are funds or securities, while the regulated-fund provisions would cover crypto securities and similar investments. The proposal does not establish a custody rule for every crypto asset or make adviser self-custody an automatic option.
MarketMind Insight
The proposal would give advisers and funds more choices while placing the burden on them to show that those choices protect client assets. Its effect will depend on the final definitions, oversight duties and operational requirements—especially the test for when a qualified custodian is truly unavailable. Until the SEC completes its review, firms should treat the framework as a proposal, not a settled compliance standard.
