SEC Proposes New Crypto Custody Framework
On October 1, the SEC proposed new rules and amendments addressing how registered investment advisers and regulated funds may custody crypto assets. The proposal is broader than crypto and would also modernize several longstanding aspects of the adviser custody framework.
What Would Change?
If adopted, the proposal would permit limited self-custody of certain crypto assets, permit certain state trust companies to serve as custodians, and update related recordkeeping and disclosure requirements. Self-custody would remain subject to specified safeguards and, for regulated funds, board oversight.
The proposal also addresses discretionary trading authority, standing letters of authorization, inadvertent custody, pooled investment vehicle audits, accountant requirements, segregation, and other traditional custody issues.
Why Traditional Advisers Should Pay Attention
Even firms that do not advise on crypto should follow the proposal. Several provisions could affect advisers with standing letters of authorization, discretionary authority, private funds, pooled investment vehicle audit arrangements, or other technical custody issues.
No Change Yet
This remains a proposed rule. Advisers should continue applying the existing Custody Rule and current custody arrangements unless and until the SEC adopts a final rule. Comments are due December 7, 2026.
Takeaways
- The SEC is proposing a clearer custody framework for crypto assets.
- Limited adviser self-custody and state trust company custody would become possible if adopted.
- The proposal extends beyond crypto and could affect several traditional adviser custody practices.
- No current Custody Rule requirement has changed; affected advisers should monitor the proposal.