SEC proposes crypto self-custody where a permitted custodian is unavailable

The SEC has proposed a tailored custody framework for crypto assets held through registered investment advisers and regulated funds. The proposal would create conditional paths for self-custody and state trust company custody while also modernising audit, broker-dealer custody, recordkeeping and disclosure requirements.[1][2][3]

The SEC identifies two scopes: registered advisers’ custody of client crypto funds and securities, and regulated investment companies’ and business development companies’ custody of crypto securities and similar investments. The applicable route depends on both the asset and the regulated user.[2]

Two regulated-user groups, several custody routes

Self-custody starts with an availability test

The proposed exception would require an adviser to document, initially and at least quarterly, that a permitted custodian is unavailable for the asset. Its safeguards would include documented expertise, private-key management, transaction approval by at least two people and client-specific asset addresses. Cybersecurity controls, an annual independent accountant’s internal-control report and annual documented control reviews would also be required.[6]

For regulated funds, the board would assess reasonable care before adviser self-custody begins and annually thereafter, and review the custodian-availability determination initially and quarterly. The proposed written adviser-client agreement would also address treatment of the crypto asset and adviser under applicable state financial-asset law.[6]

The wider proposal modernises adviser audits, reporting and recordkeeping. Proof of control over an address is only one part of the custody record: the accountable party also needs to connect the legal owner, recorded assets and liabilities, authorised transfer history and access controls.[2][1]

State trust recognition remains conditional

A 2025 staff no-action position had already addressed custody with certain state-chartered trust companies. The 2026 proposal would move the subject into Commission rulemaking. That is a material change in legal form: a staff enforcement position is narrower and more conditional than a generally applicable final rule.[5][1][2]

Match the custody route to the asset and regulated user

A custody permission depends on the asset, the adviser or fund, and the custodian’s status. It does not classify every crypto asset as a security or validate an unregistered platform as a fund custodian. Safekeeping, segregation and records address accountability; investment, liquidity, redemption and network risks remain separate questions.[2][1]

Custodian availability and control costs shape the business case

The availability test would make self-custody an exception for assets that lack a permitted external route. The commercial assessment must then include the staff, systems, independent assurance and recurring reviews needed to operate it. A firm assessing affiliates or technology providers also needs to establish who holds key material and who remains accountable for safekeeping.[6][2]

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