SEC Proposes Letting Advisers and Funds Self-Custody Crypto Assets

Advisers and Funds Could Hold Crypto Directly

Advisers could hold investors’ crypto directly when a permitted custodian is unavailable under custody changes proposed Oct. 1. The Securities and Exchange Commission (SEC), the U.S. securities regulator, proposed a tailored crypto custody framework covering registered investment advisers and regulated funds. The latter category includes registered investment companies, such as mutual funds, and business development companies, which invest in small and midsize businesses.

In practical terms, the arrangement involves advisers retaining control over private keys, the digital credentials that authorize transfers, on customers’ behalf. Regulated funds would maintain their holdings through their adviser, subject to compliance requirements and board oversight.

SEC Chairman Paul S. Atkins linked the proposal to custody rules that predate the internet, arguing that custodial services may lag new assets by months. He said:

“Since the advent of Bitcoin in 2008, the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure. Unfortunately, our rules and regulations have not kept pace.”

Self-Custody and Trust Companies Face Safeguards

Eligibility for direct safekeeping would require quarterly reassessment, while security systems would undergo reviews at least annually. Transfers would need authorization by at least two people, and each customer’s holdings would occupy separate blockchain addresses. Investors would receive quarterly statements and sign agreements treating the tokens as financial assets under applicable state law.

State trust companies, institutions chartered by state banking regulators, could provide outside safekeeping subject to initial and annual checks of their authorization and security policies. Advisers or funds would also review audited financial statements and internal control reports, while customer holdings would remain separate from the custodian’s own assets.

State supervision already addresses asset separation, including under New York’s Department of Financial Services guidance issued Sept. 30, 2025, emphasizing separate accounting and segregation of customer crypto assets. Those safeguards apply to licensed virtual currency businesses and New York limited purpose trust companies engaged in crypto custody.

Federal treatment of these institutions also prompted disagreement among SEC commissioners over crypto custody protections. In September 2025, staff offered conditional assurances against recommending enforcement action. Commissioner Hester M. Peirce supported the flexibility, while Commissioner Caroline A. Crenshaw criticized its legal basis and investor safeguards.

SEC Proposes Audit and Recordkeeping Changes

The proposed amendments also extend beyond crypto safekeeping to financial statement audits for registered investment advisers and broker-dealer custodial services for regulated funds. Broker-dealers are firms that buy and sell securities for customers or their own accounts. The changes fall under the Investment Advisers Act of 1940 and the Investment Company Act of 1940.

An adviser taking direct custody would obtain an independent accountant’s internal control report within six months and annually thereafter. The package also would update recordkeeping and disclosures, including conditional use of blockchain records and reporting on tokenized fund shares, which represent fund ownership using blockchain technology.

The amendments entered White House review ahead of the October proposal in August, when the Office of Information and Regulatory Affairs assessed the draft. That office operates within the White House Office of Management and Budget.

Atkins subsequently outlined his request for rules permitting conditional adviser self-custody during Sept. 14 remarks at the Solana Policy Institute Summit. He also sought to permit state trust companies to safeguard advisory and fund holdings.

Public comments will remain open for 60 days after the SEC’s proposing release appears in the Federal Register, the government’s official publication for federal rules and notices.