The US Securities and Exchange Commission has proposed rules that would give registered investment advisers and regulated funds a clear way to hold crypto assets for clients, something the agency itself says its current rules do not offer. The proposal was announced on 1 October and published in the Federal Register on 6 October. Comments are open until 7 December 2026.
Two changes sit at the centre of it. Advisers and funds would be allowed to keep crypto in self-custody in limited cases, and they could use state-chartered trust companies as custodians. Both come with conditions.
The gap the SEC wants to close
The custody rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940 were written for shares, bonds and cash. The SEC's fact sheet says a permitted custodian "may not be readily available" for many crypto assets. Banks qualify as custodians, but whether a state trust company counts as a bank under the present rules depends on a fact-specific reading of state and federal law. Even custodians that do handle crypto cannot support every token, particularly newer ones.
SEC Chairman Paul Atkins said the rules had "not kept pace" with a market that has grown "from a niche curiosity into a multi-trillion-dollar asset class", and that the proposal would give advisers and funds "a compliant pathway where none existed before".
Self-custody, with strings attached
Self-custody would be a fallback rather than a default. An adviser could hold a client's crypto itself only after deciding that no permitted custodian is available for that asset, and it would have to repeat that check every quarter.
It would also need documented expertise in safeguarding each asset, and systems against loss, theft, misuse and misappropriation that are reviewed at least once a year. Those systems must cover private key management and require at least two people to authorise any crypto transaction. Each client's crypto would sit in one or more addresses that hold only that client's assets.
The list goes on. Cybersecurity controls would be reviewed every year. An independent public accountant would issue an internal control report within six months of the adviser taking self-custody and annually after that. Clients would get account statements at least every quarter, and adviser and client would agree in writing to treat each self-custodied asset as a "financial asset", which brings extra protection under state law. Where the client is a fund, its board would review the adviser's reasons every quarter and decide, before custody starts and every year after, that the asset would get reasonable care.
The state trust company route
The second route lets advisers and funds use a state trust company. Before engaging one, and every year after, they would need a reasonable basis, after due inquiry, to believe the company is authorised by its state banking regulator to hold crypto and follows written policies to protect it. They would have to review its latest audited annual financial statements and its latest internal control report. Client crypto must be kept apart from the trust company's own assets.
The package also updates older parts of the custody rules. It adds exceptions based on discretionary trading authority, standing letters of authorisation and inadvertent custody, removes Public Company Accounting Oversight Board requirements, amends parts of the audit provision, drops dated conditions on broker-dealer custody for funds and makes clear that business development companies can use the fund custody rules.
Part of a busy US rulebook
The rules would apply to SEC-registered advisers and funds and do not reach Indian investors directly. They are one of several US crypto rulemakings open at the same time. The CFTC has opened a consultation on leveraged retail crypto trading, and the SEC and SEBI were among regulators who used World Investor Week to warn investors about impersonation scams.
Anyone who wants to weigh in can use the SEC's online comment form until 7 December. The conditions above are taken from the proposing release, numbered IA-7023, and the fact sheet that came with it. This is information, not advice.
