The SEC Has Proposed Rules for How Advisers and Funds May Hold Crypto. Self-Custody Is on the List.

The Securities and Exchange Commission on October 1 proposed a set of rules describing how registered investment advisers and regulated funds may hold crypto assets. The proposal sits under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, and it addresses a question the existing custody rules were written long before anyone needed to answer: what counts as safekeeping an asset that is controlled by a private key rather than held in an account.

What the Proposal Would Change

• Qualified custodians: state trust companies would be permitted to serve as qualified custodians for client and fund crypto assets. Under the current framework the list of eligible custodians is narrower, which has been the practical obstacle for advisers seeking a compliant arrangement.
• Self-custody: the proposal would allow crypto assets to be held in self-custody in certain circumstances, rather than requiring a third-party custodian in every case.
• Audits and broker-dealer services: the proposal would modernise financial statement audit requirements for registered investment advisers and the rules governing broker-dealer custodial services for regulated funds — registered investment companies and business development companies.
• Advice: the Commission frames part of the package as removing regulatory obstacles that have discouraged advisers from offering crypto-related investment advice at all.

Why Custody Was the Binding Constraint

The adviser custody rule is built around the idea that a client's assets sit with a qualified custodian — typically a bank, a registered broker-dealer, a futures commission merchant or certain foreign financial institutions — and that an independent accountant can verify they are there. A crypto asset does not fit that architecture cleanly. Control rests with whoever holds the private key, and the question of who legally holds the asset, how an auditor confirms it, and what happens in an insolvency has no settled answer under the existing rule. The practical result has been that many advisers concluded there was no clearly compliant way to hold crypto for clients and declined to do it. The proposal is the Commission's attempt to write that pathway.

Today's proposal would provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before.

What Happens Next

A proposal is not a rule. The comment period runs for 60 days from the date the proposal is published in the Federal Register, after which the Commission may adopt a final rule, adopt a modified version, or not proceed. Until that happens the existing custody requirements continue to apply unchanged. Commissioners issued separate statements on the proposal the same day; the Commission also announced on October 1 the departure of Commissioner Hester Peirce.

What It Does Not Do

The proposal is about custody and the conditions under which an adviser or fund may hold crypto assets. It is not a determination of which crypto assets are securities, it does not create a market-structure regime, and it does not approve any particular product. Those remain separate questions under separate authorities, some of which sit with Congress rather than the Commission.