SEC Proposes Conditional Adviser Custody Route for Crypto Assets, Not a Rule Yet

The U.S. Securities and Exchange Commission has proposed a conditional way for investment advisers to hold certain crypto assets for clients when no qualified custodian is available for the particular asset. The October 1 measure is a proposed rule, open to comment, rather than a custody permission already in force.

The distinction matters because the proposal calls this route adviser “self-custody.” Under the proposed text, the adviser would serve as custodian of a client’s assets. It does not describe the client personally holding the private keys. SEC Commissioner Hester Peirce criticized that terminology, saying the proposal’s use of self-custody differs from an individual’s direct control of crypto assets. That is Peirce’s interpretation, not a separate finding by the Commission.

When could an adviser hold client assets?

The proposed exception would require an adviser to determine and document, at the outset and at least quarterly afterward, that no qualified custodian is available for the specific crypto asset. It would also require expertise in safeguarding that asset. The test is asset by asset: the proposal does not assert that qualified custodians are unavailable across crypto markets, and the route would not apply merely because an adviser prefers to hold an asset itself. These conditions are set out in the SEC proposing release.

If an adviser met that threshold, the proposed safeguards would include private-key management, authorization by at least two people for transactions, and separate addresses containing only each client’s assets. The adviser would also face cybersecurity controls and an annual written review. An independent public accountant would provide an annual internal-control report, while clients would receive quarterly statements. A written client agreement would treat the asset as a financial asset and the adviser as a securities intermediary under applicable state law. Each requirement remains proposed, according to the release.

This path has a limited scope. The proposed Advisers Act amendments address crypto assets that are funds or securities, with additional coverage for securities or similar investments in regulated-fund accounts. The proposed Investment Company Act custody rules concern securities or similar investments. They are not a general rule for every token, exchange or person who holds crypto in a personal wallet, as the SEC text makes clear.

Another custody route and the next step

The SEC also proposes allowing qualifying state trust companies to act as custodians, subject to adviser or fund due diligence on state authorization and safeguards. For regulated-fund assets held by an adviser, the proposal adds fund-board oversight. Eligibility would depend on the proposed conditions; it would not extend automatically to every state trust company.

The SEC acknowledges that the cost of adviser self-custody controls could confine the option to firms with enough assets for which a permitted custodian cannot be found. It also identifies possible adviser misappropriation risk and asks for comment on safeguards and oversight. Those trade-offs, and the final shape of either custody route, remain open while the Commission considers feedback.

The proposal was published in the Federal Register on October 6, 2026, and comments are due on or before December 7, 2026, under file number S7-2026-35 and RIN 3235-AN46. It remains a proposed rule, not an effective custody rule.