SEC Proposes Crypto Custody Rules for Advisers in 2026

The U.S. Securities and Exchange Commission on Thursday, Oct. 1, 2026, proposed a tailored custody framework for crypto assets held by registered investment advisers and regulated funds — closing a gap that has left institutional managers guessing how to hold tokens under rules written for stocks and cash. The package would let advisers "self-custody" client crypto when no permitted custodian is available, and it would add eligible state trust companies as custodians, subject to safeguarding conditions and a 60-day public comment period after Federal Register publication.

The move lands two weeks after the Senate failed cloture on the market-structure CLARITY Act and days after the agency's Innovation Exemption for tokenized stocks. It also marks a swan song for Commissioner Hester Peirce, who has led the Crypto Task Force and exits Friday, Oct. 2. For advisers, funds, and anyone watching how bitcoin and other crypto assets enter traditional portfolios, custody — not another price print — is the bottleneck this proposal tries to clear.

What the SEC proposed on Oct. 1

In a statement accompanying the proposal , Chairman Paul Atkins framed the gap bluntly: custody rules under the Investment Advisers Act of 1940 and Investment Company Act of 1940 "predate the internet" and were designed for traditional assets. "Since the advent of Bitcoin in 2008, the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure," Atkins said. "Unfortunately, our rules and regulations have not kept pace."

According to the Commission's summary and contemporaneous coverage from The Block and CoinDesk , the proposal (Investment Advisers Act Release No. 7023) would:

• Create a compliant pathway for registered investment advisers and regulated funds — registered investment companies and business development companies — to custody crypto assets that are funds, securities, or similar investments under the federal securities laws.
• Permit limited adviser "self-custody" of client and fund crypto when the adviser determines no permitted custodian is available, with quarterly reassessments and operational safeguards.
• Allow eligible state-chartered trust companies to serve as crypto custodians if they meet authorization, safeguarding, audit, and segregation conditions.
• Modernize related audit, recordkeeping, disclosure, and broker-dealer custody requirements that have not been updated for decades.

CoinDesk reported the proposing release runs about 760 pages. The rules are not effective yet; comments run for 60 days after Federal Register publication, and the final framework can change.

Self-custody — with an asterisk

The headline feature is conditional self-custody. Cointelegraph and the commissioners' statements describe a narrow gate, not a free-for-all:

• An adviser must establish that no permitted custodian is available for each asset before taking self-custody, and reassess that determination quarterly.
• If a custodian later becomes available, assets must be transferred as soon as reasonably practicable.
• Safeguards would cover private keys, cybersecurity, and segregation of each client's holdings.
• At least two authorized individuals would have to approve any transfer of a self-custodied crypto asset.
• For regulated funds, board oversight would apply when the investment adviser holds crypto in self-custody.

Commissioner Mark Uyeda, in his Oct. 1 statement , stressed the conflict of interest: adviser custody creates an inherent tension, and fiduciary duties still apply. Guardrails he listed include safeguarding expertise, cybersecurity protections, annual reviews, internal reporting, account statements, and client disclosures. He contrasted the package with the Commission's 2023 custody proposal, which he said constructed a "no-win" scenario for crypto by demanding qualified custodians while casting doubt on whether any could demonstrate exclusive control — a problem compounded by Staff Accounting Bulletin No. 121's on-balance-sheet treatment of crypto liabilities.

Peirce's own statement put quotation marks around "self-custody" for a reason. The proposal uses the term for advisers acting as custodians for client assets — not retail investors holding their own keys. She joked she would have preferred "shelf-custody," then added: "True self-custody is not the right choice for everyone, but many crypto owners prize being able to custody their own assets. Regulators should zealously protect investors' right to self-custody and not attempt to force investors to custody their assets with someone else."

An SEC official told CoinDesk that self-custody would likely be unusual after the rule is implemented, and that the use case is mainly a newly launched token that custodians do not yet support — the lag Atkins described between asset deployment and custodial capability.

State trust companies as permitted custodians

The second track expands who can sit as a permitted custodian. State trust companies — firms authorized by a U.S. state to safeguard assets for others — would become eligible crypto custodians for advisers and regulated funds if conditions are met. Per Peirce and Cointelegraph reporting, before engaging a state trust company and annually thereafter, the adviser or fund must have a reasonable basis, after due inquiry, that the company:

• Is authorized by the relevant state banking authority to provide crypto asset custody.
• Has written policies and procedures reasonably designed to safeguard crypto assets and related cash from theft, loss, misuse, and misappropriation.
• Maintains audited financial statements and internal control reports.
• Segregates client holdings from the company's own assets.

Peirce argued that opening the door to eligible state trusts would increase competition and expand investor protection and investment options. That matters because, as her footnote to the proposing release notes, few traditional custodians have offered robust services across a substantial range of crypto assets — partly due to prior Commission action, staff statements, and other guidance.

For institutional desks that already use Wyoming, New York, or other state-chartered crypto trusts for bitcoin and ether, the proposal is less about inventing a market than about putting those arrangements on firmer Advisers Act and Investment Company Act footing.

Why custody still blocks institutional crypto

The Digital Chamber told the SEC in a May 2025 submission, cited by Cointelegraph, that some advisers had declined token allocations or asked portfolio companies to retain tokens until custody became available. That is the practical pain point: an RIA can research a token, underwrite it, and still refuse the position if no qualified custodian will hold it — or if taking custody themselves risks an enforcement theory under rules written for DTC-eligible securities.

ETF wrappers papered over some of that friction for bitcoin and ether, but they do not cover every mandate. A fund that wants direct on-balance-sheet bitcoin, a multi-strategy book that needs altcoin inventory for basis trades, or an adviser allocating to a newly launched network token still hits the same wall: without a permitted custodian — or a lawful self-custody alternative — the compliance memo says no. Atkins' statement calls that lag between asset deployment and custodial capability "a substantial problem." The Oct. 1 proposal is the Commission's attempt to solve it without waiting for another congressional market-structure vote.

The 2023 safeguarding proposal made that worse for many market participants. Peirce wrote that compliant crypto custody looked impossible under that draft, and that the accompanying release suggested many advisers were already on the wrong side of the law when crypto traded on platforms that were not qualified custodians. Today's proposal is an explicit attempt to reverse that trap: expand authorized options beyond current qualified custodians, acknowledge technological lag, and keep fiduciary and safeguarding standards in place.

Scope still has edges. Peirce's statement notes that not all crypto assets are subject to these custody requirements — the Advisers Act amendments would apply only to crypto that are funds or securities (or, for a regulated fund account, a security or similar investment). Tokens outside that perimeter remain a different regulatory conversation.

Post-CLARITY agency rulemaking, not waiting on Congress

Context matters. On Sept. 15, 2026, Senate cloture on the CLARITY Act failed 49–50. In the days that followed, the SEC released its Innovation Exemption for limited trading of tokenized NMS stocks, and the CFTC filed crypto-market rulemaking for White House review. Atkins has said the agency will keep building on-chain rules under existing authority even without a comprehensive statute.

Thursday's custody proposal is another checkmark on that agenda. Atkins listed prior steps in his statement: a December 2025 DTC tokenization no-action letter; a January 2026 staff statement on tokenized securities; a March 2026 interpretation on which crypto assets are securities; an April staff statement on broker-dealer registration for certain user interfaces; August's proposed Regulation Crypto Assets; and the recent Innovation Exemption. "With the movement on the custody issue," CoinDesk reported, "the SEC has now put a checkmark in every major topic on the crypto agenda originally set out by Atkins."

NovaDius President Nate Geraci wrote on X, as quoted by The Block: "Moving quickly & aggressively. Some politicians are going to wish they passed the Clarity Act." Bitwise CIO Matt Hougan has separately argued that losing Clarity's statutory certainty may have cleared the way for faster, more favorable agency rules — with the caveat that a future administration can reverse guidance that is not locked into statute.

Peirce's exit the day after the proposal also reshapes the Commission's math. CoinDesk noted the SEC earlier this week reduced the quorum requirement from three commissioners to two, leaving a thin bench once she leaves for a teaching post in Virginia.

What this means for investors

For spot bitcoin and ether ETF holders, little changes overnight — those products already sit inside a different custody and Authorized Participant stack. The bigger near-term audience is RIAs, hedge funds, and registered funds that want direct crypto exposure or strategies that ETFs cannot package: newer tokens, staking-adjacent products where custody is the gating item, or mandates that require holding the asset itself rather than a wrapper.

• Advisers get a documented path to hold client crypto when custodians lag, but only with quarterly availability checks, dual-control transfers, cyber and segregation controls, and ongoing fiduciary duties.
• State trust custodians get a clearer federal recognition path — competition that could pressure bank and trust pricing if the final rule sticks close to the proposal.
• Funds and boards get updated broker-dealer custody and audit language, plus oversight duties when self-custody is used.
• Commenters have 60 days after Federal Register publication to shape the final rule; Peirce explicitly asked market participants to read the full release and respond to its many requests for comment.

The proposal does not legalize every DeFi wallet arrangement, does not resolve CLARITY's market-structure fight, and does not make novel tokens automatically "qualified custodian ready." It does something narrower and more institutional: replace a decade of grey area with a proposed compliant pathway for the entities that manage other people's money. If the final rule lands with the self-custody gate and state-trust option intact, more advisers will be able to say yes to crypto allocations they previously parked or refused — and that, more than another weekly ETF flow print, is how regulatory plumbing changes portfolios.

Watch the Federal Register publication date for the comment clock, and watch whether the final text keeps the quarterly "no custodian available" test as the real choke point on adviser self-custody. That condition — not the marketing phrase "self-custody" — will decide how often this new path is actually used.