SEC Proposes Crypto Self-Custody for Advisers, With Quarterly Checks

SEC self-custody requires quarterly custodian checks

The term “self-custody” has a specific meaning here. An adviser would hold assets for clients or a regulated fund, rather than the investor personally controlling a wallet’s keys. Commissioner Hester Peirce highlighted that distinction in her custody statement.

Under the main proposed route, an adviser must determine before taking custody, and at least quarterly afterward, that no permitted custodian is available to maintain the asset. The finding would be written and based on reasonable inquiry, according to the proposing release.

The release says the cost of hiring a custodian cannot justify that finding. If a suitable custodian becomes available, the adviser would have to transfer the asset as soon as reasonably practicable, including when it learns of that provider between quarterly reviews.

That distinction limits the commercial interpretation. An adviser could not simply choose direct custody because it preferred keeping the fee revenue or found an outside provider expensive. The proposed route responds to an availability problem, rather than offering unrestricted choice between operational models.

For an adviser evaluating a newly launched asset, the practical question would be whether a provider can safeguard that particular asset. The quarterly review makes that answer temporary: a gap in available services at launch would not establish a permanent right to hold the asset directly.

The SEC’s fact sheet describes safeguarding expertise, private-key controls and joint authorization by at least two people. It also calls for separate client asset addresses, annual safeguarding and cybersecurity reviews, and quarterly account statements.

An independent accountant’s internal-control report would be required within six months of taking self-custody and annually afterward. Regulated fund boards would oversee the arrangement. The requirements make the proposed option an operational undertaking, rather than a wallet setup alone.

Maintaining control of keys would therefore bring responsibility for transaction approvals, reporting and recovery arrangements into the adviser’s own organization. Any eventual expansion in access would depend on whether firms can meet those duties, not simply on adoption of a final rule.

State trust companies get a separate custody route

The second major option would allow advisers and regulated funds to use state trust companies for crypto custody. Peirce said they would need a reasonable basis, after inquiry, to believe the company has state banking authorization and written policies designed to protect assets. That assessment would occur before engagement and annually afterward.

The fact sheet also specifies review of the company’s latest annual audited financial statements and internal-control report. Client and fund crypto assets would have to remain separate from the trust company’s own holdings.

State authorization and federal custody eligibility answer different questions. The proposed framework would provide a defined route for evaluating the provider, while leaving advisers and funds responsible for reviewing its safeguards. A charter alone would not satisfy every condition described by the SEC.

Commissioner Mark Uyeda said in his October 1 statement that the SEC’s 2023 approach demanded qualified custodians while questioning whether they could demonstrate exclusive control of crypto assets. He described the new proposal as an effort to make compliance operationally workable without giving up investor protection.

The rules also contain changes outside crypto custody, including audit requirements and broker-dealer arrangements for regulated funds. Those provisions should be assessed separately from the proposed permissions for holding digital assets.

The wider policy debate has included Canada’s interim custody framework. That framework concerns Canadian trading platforms, while this proposal concerns U.S. advisers and funds; their scope and legal status differ.

Crypto custody proposal starts a 60-day comment process

The asset scope remains important. Peirce’s statement says the adviser amendments apply to crypto assets that are funds or securities, with securities or similar investments covered for regulated fund accounts. The proposal does not turn every token into a security or impose the same requirements on every retail wallet.

Custody eligibility also does not settle whether a trading venue or offering complies with other securities requirements. The SEC’s separate five-year tokenized-stock exemption illustrates how trading permissions can carry their own conditions even when a custody arrangement is available.

The comment period is 60 days after Federal Register publication, rather than automatically 60 days from the October 1 announcement. The posted release identifies file S7-2026-35 and leaves the publication-dependent deadline as a placeholder.

That sequencing separates the initial announcement from the public response window and any eventual compliance date. A proposed condition can still change before adoption, so institutions considering new custody services face both a regulatory timetable and the work of building the necessary controls.

Public comments can influence the final conditions. The quarterly availability test, practical safeguards and state trust company requirements are therefore proposed obligations, with their final form still unresolved.

Source: Alternative.me. Its Bitcoin-focused Fear and Greed Index read 72, or Greed, on October 2; it does not measure custody compliance or the proposal’s investment impact.

The next milestones are Federal Register publication, submitted comments and any final Commission action. The SEC has not announced a final adoption date, and neither adviser self-custody nor the state trust company route can be assumed to operate on the proposed terms today.