SEC proposes crypto custody framework for advisers and funds

What happened

The US Securities and Exchange Commission has proposed a new framework for how registered investment advisers and regulated funds custody crypto assets. The proposal, dated October 1, 2026, was issued under file number S7-2026-35, with release numbers IA-7023 and IC-36353. It covers registered investment advisers, registered investment companies and business development companies. It is a proposal open for comment, not a final rule, and the public comment period runs for 60 days after publication in the Federal Register.

The framework has two custody routes at its centre. First, a state trust company could serve as a custodian for client and regulated fund crypto assets, provided the adviser or fund assesses the company's state authorization and its written safeguards before appointment and repeats those checks annually. According to the commissioner statement summarized in coverage, those safeguards must address theft, loss, misuse and misappropriation of crypto assets and related cash.

Second, an adviser could hold client or fund crypto assets itself in limited circumstances. This is described in the proposal as self-custody, but in this setting the phrase means the adviser holding assets for clients, not an individual investor holding personal keys in a private wallet. The adviser would first need to determine that no permitted custodian is available for the asset, and it would need to repeat that assessment quarterly. If a permitted custodian later becomes available, the logic of the framework is that the fallback should be reassessed rather than treated as permanent.

The proposal also includes changes to reporting and recordkeeping requirements. Coverage of the SEC statement notes two practical problems the framework is trying to solve. One is delay: custodial support for a newly launched crypto asset can take months to become available, leaving advisers and funds without a compliant route during that gap. The other is fit: custody rules written for traditional assets do not map neatly onto private keys, wallet addresses and onchain transfers.

The SEC chair summarized the gap in one sentence quoted in coverage: "Unfortunately, our rules and regulations have not kept pace." The same statement tied the proposal to client demand for exposure to a multitrillion-dollar asset class and to uncertainty about lawful custody arrangements. A commissioner statement also stressed the distinction between adviser custody for clients and an investor's own decision to hold assets directly, and argued that regulators should protect the investor's right to self-custody in that personal sense.

The proposal arrived in the same week that the commissioner who led the SEC Crypto Task Force departed the agency. Coverage described the custody release as a closing item on a broader crypto rulemaking agenda that has included tokenized securities statements, an offering framework proposal and an innovation exemption for certain tokenized stock trading.

Why it matters

Custody is not a back-office detail in regulated finance. It is the rule set that answers who holds the assets, how they are separated from other people's assets, what happens if the holder fails, and how an auditor verifies that the assets are there. For traditional securities, those answers are built around custodians and account records. For crypto assets controlled by private keys, each answer has to be translated. A clear framework therefore decides whether many regulated firms can offer a crypto strategy at all.

The conditional self-custody route is the most sensitive part of the proposal. Letting an adviser hold client keys creates an obvious conflict, because the firm advising on the assets would also control the means to move them. The proposal does not treat that conflict as a reason to ban the arrangement in every case. Instead, it tries to confine it to assets for which no permitted custodian is available, with repeated quarterly checks and safeguard conditions. Whether those conditions are strict enough will be a predictable centre of the comment file. Custodians, adviser groups, fund boards and investor advocates are likely to read the same pages and reach different conclusions about cost, safety and competition.

The state trust company route has a different significance. State-chartered trust companies are already part of the crypto custody landscape, but a staff position and a Commission rule do not carry the same weight. Writing the route into a rule would give advisers and funds a clearer basis for appointing such custodians, while the annual assessment requirement keeps the duty on the adviser or fund to check authorization and safeguards rather than assuming the charter answers everything.

Cost will shape who can use any new route. A full custody programme needs key management systems, cybersecurity review, segregation controls, transfer approvals, recordkeeping, staff training and independent checks. Those requirements can protect clients, and they can also favour larger firms that already run control infrastructure. Smaller advisers may decide that the compliant path exists on paper but is only practical through third-party custodians.

For fund investors, the key point is more basic: this proposal concerns advised and fund money. It does not change the legal status of a personal wallet, an exchange account or a spot crypto ETF.

What to watch

The first thing to watch is the Federal Register publication date, because the 60-day comment period runs from publication rather than from the announcement date. Comment letters will show the pressure points: the quarterly custodian-availability test, the safeguards for state trust companies, and the controls expected when an adviser holds keys directly.

The second point is scope. Coverage notes that some fund types cannot rely on the proposed self-custody and state trust company routes in the same way. Readers should avoid treating the proposal as a blanket custody answer for every token, fund and trading platform. Trading platforms that are not permitted custodians are not added to the permitted list by this proposal.

The third point is sequence. The SEC has several crypto proposals moving at once, and the departure of the Crypto Task Force chief changes who carries the file day to day. A final rule vote and compliance dates are still ahead. Firms should not treat a news release as a custody exception they can use today.

For CryptosEyes readers, the practical marker will be adoption by named advisers, funds and custodians after any final rule. Until then, the accurate status is simple: a detailed proposal, a defined comment clock, and no final custody rights yet.