SEC proposes conditional crypto custody paths for advisers and state trust companies

The SEC proposed new crypto custody rules Thursday that would let investment advisers hold some client assets themselves and give eligible state trust companies a clearer role as custodians. The October 1 proposal covers registered investment advisers and regulated funds, including registered investment companies and business development companies.

The two paths address a practical obstacle: a firm can want exposure to a crypto asset while lacking a permitted custodian equipped to hold it. Adoption remains subject to rulemaking. The SEC has opened a comment process, with the 60-day period measured from publication of the proposing release in the Federal Register.

When an adviser could hold the assets

An adviser would first have to determine that no permitted custodian is available for the particular asset, then repeat that determination every quarter. Commissioner Hester Peirce emphasized those limits in her accompanying statement.

She also drew a distinction that matters for anyone reading the headline: the proposal's term “self-custody” describes an adviser holding assets for clients. It describes a different arrangement from an individual retaining direct control of their own crypto.

The proposed safeguard package includes documented custody expertise, private-key controls and authorization of transactions by at least two people. Each client's holdings would sit in addresses containing only that client's assets. Cybersecurity and safeguarding systems would face annual reviews, while an independent accountant's internal-control report would be required within six months of taking custody and annually afterward. Clients would receive statements at least quarterly.

Regulated funds would also need board oversight of the arrangement. These conditions make operational controls part of the proposed permission to hold the assets.

The state trust company path

Using a state trust company would carry its own recurring checks. Before engaging one, and annually afterward, the adviser or fund would need a reasonable basis, after due inquiry, for believing it has authorization from the relevant state banking authority and written safeguards against theft, loss, misuse and misappropriation.

The SEC's fact sheet also calls for reviewing the company's latest annual audited financial statements and internal-control report, and separating client and fund crypto from the trust company's own assets.

The Block's Jason Shubnell reported the proposal Thursday, highlighting how limited adviser custody could fill a gap when permitted custodians are unavailable. On X, Matthew Sigel described the development as a move from guidance toward formal rulemaking.

That distinction leaves the next milestone clear: a proposal and comment record must precede any final adopted framework. Thursday's announcement does not by itself put these new custody permissions into effect.