On October 1, 2026, the SEC proposed a framework for how registered investment advisers and regulated funds can hold crypto assets. It would allow self-custody under conditions, let state trust companies act as custodians, and update audit and broker-dealer custody provisions. It is a proposal, not a final rule, and the comment period runs 60 days from Federal Register publication.
For years, the central question for any fund manager looking at crypto has been less “should we?” and more “who holds the keys, and does our compliance program allow it?” On October 1, 2026, the Securities and Exchange Commission put forward its answer in the form of a proposal covering how registered investment advisers, registered investment companies and business development companies can custody crypto assets under the federal securities laws. This article walks through what the SEC says it is proposing, why custody is the sticking point, and what finance, compliance and treasury teams should be doing while the comment period is open.
What the SEC actually proposed
According to the SEC’s announcement, the proposal would establish “a tailored framework for the custody of crypto assets for registered investment advisers and regulated funds.” The agency describes several components:
- Removing barriers to crypto-related advice. The proposal is meant to remove regulatory obstacles that have kept advisers from offering crypto-related investment advice.
- Broader strategies for regulated funds. Registered investment companies and business development companies would be able to offer clients a wider range of crypto asset investment strategies.
- Self-custody under conditions. The framework would permit self-custody of crypto assets, but only if certain conditions are met.
- State trust companies as custodians. State trust companies would be authorized to serve as custodians for client and fund crypto assets.
- Audit updates. Financial statement audit requirements for registered investment advisers would be updated.
- Broker-dealer custody. Provisions on broker-dealer custodial services for regulated funds would be modernized.
SEC Chairman Paul S. Atkins framed the move as a catch-up exercise, saying that “our rules and regulations have not kept pace” with the growth of crypto “from a niche curiosity into a multi-trillion-dollar asset class.” The proposal operates under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, the two statutes that govern most advisers and registered funds.
Note what the public announcement does not give us: the detailed conditions for self-custody, the precise eligibility standards for state trust companies, and the final text of the rule changes. Those details sit in the proposing release itself, and anyone planning around this should read that document rather than rely on summaries, including this one.
Why custody is the real bottleneck
Custody rules exist because client assets held by an adviser are a classic fraud and loss risk. The traditional approach under the Advisers Act is to require that client funds and securities be held by a “qualified custodian,” typically a bank, broker-dealer or similar regulated institution, with safeguards around account statements and independent verification. That model works well for stocks and bonds, which sit in centralized records. It fits crypto awkwardly. A crypto asset is controlled by whoever controls the private key, and the “record” is a public blockchain rather than a custodian’s ledger.
This mismatch has had practical consequences. Advisers that wanted to hold crypto for clients faced uncertainty about whether available custodians qualified, whether self-held keys could ever satisfy the rule, and how auditors should verify holdings. Many simply stayed out, or limited themselves to products that wrap crypto exposure in a more familiar structure. A framework that explicitly addresses self-custody and state trust company custodians speaks directly to those pain points.
The two custody models in plain terms
Third-party custody through a state trust company
Under the proposal, state trust companies could hold client and fund crypto assets. For many managers this is the more comfortable path: a regulated entity holds the keys, produces records, and carries operational and insurance responsibilities. The questions to ask will include what standards the proposal sets for those trust companies, how assets are segregated, and how a manager performs ongoing due diligence on the custodian.
Self-custody under conditions
Self-custody means the adviser or fund controls the keys directly. The upside is control and potentially lower counterparty exposure; the downside is that the manager takes on key management, cybersecurity, recovery procedures and the burden of proving to auditors and examiners that the assets exist and are safe. Because the SEC says self-custody would be allowed only when certain conditions are met, expect those conditions to focus on exactly these controls.
What it could mean for different teams
Investment advisers and fund managers
The proposal is aimed squarely at you. If adopted, the changes could widen the set of strategies a registered fund or adviser can offer without stepping outside the custody framework. The immediate work is to map current crypto-adjacent activity, such as exposure through ETFs, trusts or derivatives, against what direct holding might look like, and to decide whether direct custody would ever be part of the product roadmap.
Compliance and legal
Compliance teams should treat the comment period as an opportunity. Comments are how practitioners flag ambiguity: what counts as control of a private key, how to treat staking or network forks, how a custodian’s insolvency would affect segregation. The SEC has said the comment window is 60 days from publication in the Federal Register, so the clock starts when that publication happens, not on the announcement date.
Finance, audit and treasury
The proposal would update financial statement audit requirements for registered investment advisers. Auditors and finance leads should read these sections closely, because verifying digital assets raises evidence questions that traditional confirmation procedures do not answer neatly. Finance teams at corporate entities that are not advisers are not directly covered, but the framework may shape what institutional-grade custody looks like across the market.
Service providers
Broker-dealers, trust companies and fund administrators are all mentioned or implied by the proposal. Anyone offering custody, administration or audit support for crypto assets should expect a shift in how clients ask about regulatory fit.
Context: where this fits in the SEC’s recent agenda
This was not an isolated announcement. In the same stretch, the SEC also proposed amendments aimed at expanding retail access to private markets in regulated fund structures, framed around investor choice, innovation and capital formation with investor protections maintained. The SEC’s Division of Examinations also announced a new exam handbook on October 1. Taken together, the signals point in one direction: the agency is trying to bring newer asset types and fund structures inside the regulated perimeter rather than leaving them outside it.
The enforcement side has not gone quiet. During the same week the SEC announced charges against a firm and its chief executive over alleged defrauding of retail investors in private funds holding interests in SpaceX and other pre-IPO securities, as well as separate fraud cases involving schemes that used messaging platforms to lure investors. A proposal that opens the door wider does not mean examiners are looking away. If anything, firms that move into newer areas should expect their custody and disclosure practices to be tested early.
What the trend data suggests
Search interest on the day tilted toward sports and entertainment, so crypto custody is not a mass-market trending topic right now. That is normal for regulatory stories: the audience is professional and the interest shows up in specialist feeds, law firm alerts and compliance newsletters rather than in general search spikes. For publishers and marketers in the space, the opportunity is in explaining the mechanics clearly while the proposal is fresh, since practitioners will keep searching for plain-language summaries throughout the comment period.
A practical checklist for the next 60 days
- Get the primary documents. Read the SEC press release and the full proposing release, and note the Federal Register publication date to calendar the comment deadline.
- Inventory exposure. List every way your firm or funds touch crypto today, directly or indirectly, and who currently holds the assets or keys.
- Identify the questions you would want answered. Draft your own list on self-custody conditions, trust company standards, audit evidence and segregation.
- Talk to your custodians and auditors. Ask how they are reading the proposal and what controls they would expect under it.
- Decide whether to comment. Even a short letter from a practitioner can sharpen the final rule.
- Do not change client disclosures yet. A proposal can change before adoption, or not be adopted at all. Plan, but do not act as if it were final.
Questions the proposal leaves open
Several important issues cannot be answered from the announcement alone. How strict will the self-custody conditions be, and will smaller managers realistically be able to meet them? Will state trust company custody be treated as equivalent to custody at a bank for all purposes? How will the audit changes handle assets whose existence is proved by on-chain data rather than a custodian’s confirmation? And how will the framework interact with state law and with the agency’s other recent proposals on fund structures? Each of these will be shaped by comment letters, and by how the Commission responds to them.
Bottom line
The SEC’s October 1 proposal is the clearest sign yet that the agency wants a defined path for regulated advisers and funds to hold crypto assets. It offers two broad routes, state trust company custody and conditioned self-custody, and pairs them with updates to audit and broker-dealer custody provisions. For finance and compliance leaders, the right response is measured: read the release, map your exposure, engage custodians and auditors, and consider commenting. The rule that eventually emerges may look different from today’s proposal, but the direction of travel is now on the record.
Sources
- SEC press release: proposal on custody of crypto assets by investment advisers and funds (Oct. 1, 2026)
- SEC press release: amendments to expand responsible retailization of private markets
- SEC press releases RSS feed
This article is general information, not legal or investment advice.
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