The U.S. Securities and Exchange Commission has proposed an Oct. 1 crypto custody framework under two federal investment laws, allowing conditional self-custody and state trust company custody for investment advisers and regulated funds. Summary The proposal covers registered investment advisers, registered investment companies and business development companies. Advisers could hold crypto themselves when no permitted custodian is available, subject to conditions. State trust companies would face checks on their authority and safeguards before serving as custodians. Public comments will remain open for 60 days after publication in the Federal Register. SEC Chairman Paul Atkins said in the statement shared in his Oct. 3 X post that the proposal addresses uncertainty over how advisers and funds can legally hold crypto assets for clients. The SEC published the same statement on Oct. 1, alongside its proposed rules. According to the commission’s announcement, the framework would remove custody barriers that restrict crypto-related investment advice. The agency said it would also let regulated funds offer more crypto investment strategies, identifying registered investment companies and business development companies among the funds covered. SEC crypto custody proposal would permit conditional self-custody Under the SEC’s proposal, advisers could hold client and fund crypto assets themselves in limited circumstances. Commissioner Hester Peirce explained that an adviser must first determine that no permitted custodian is available for the asset, then repeat that assessment quarterly. In her Oct. 1 statement, Peirce said “self-custody” describes an adviser holding assets for clients. She distinguished the arrangement from investors keeping their own assets without an intermediary. As crypto.news reported on Oct. 2, the conditional self-custody proposal forms part of a framework that also addresses outside custody providers. The SEC has opened the changes for comment rather than adopted them as final rules. For state trust company custody, Peirce said advisers and funds must assess the company’s state authorization and written safeguards before appointing it, then repeat those checks annually. According to her statement, the safeguards must address theft, loss, misuse and misappropriation of crypto assets and related cash. According to the SEC’s rulemaking docket, the proposal also includes changes to reporting and recordkeeping requirements. The agency issued it under file number S7-2026-35, with release numbers IA-7023 and IC-36353. The docket sets the public response period at 60 days after Federal Register publication. Under the SEC’s stated schedule, the comment clock therefore runs from publication of the proposing release rather than the date of Atkins’ X post. Existing custody rules leave gaps for newly launched assets In Atkins’ account, the required use of permitted custodians creates a practical problem when custody providers cannot support a newly developed crypto asset for several months after its launch. He said the proposed framework would address that delay while giving advisers and funds a route to compliant custody. The chairman described parts of the rules under the Investment Advisers Act of 1940 and Investment Company Act of 1940 as predating the internet. According to his statement, the provisions were written around traditional assets and protections against loss, theft, and misuse. “Unfortunately, our rules and regulations have not kept pace,” Atkins said. With clients seeking exposure to what he described as a multitrillion-dollar asset class, Atkins said the existing framework has left advisers and funds uncertain about lawful custody arrangements. His statement tied the revisions to client demand and the limits of custody rules developed before crypto markets existed. Beyond digital assets, the SEC said its amendments would update requirements involving financial statement audits for registered investment advisers and broker-dealer custody services for regulated funds. In earlier coverage published Aug. 26, the White House custody review tracked the proposal’s submission to the Office of Management and Budget on Aug. 25. The report described a separate rulemaking effort after the SEC withdrew its previous safeguarding proposal in June 2025. Tokenized securities measures preceded the custody proposal Looking back at the agency’s earlier actions, Atkins identified the December 2025 staff no-action letter for the Depository Trust Company’s voluntary securities tokenization pilot as one component of its crypto policy program. According to his statement, staff followed that letter with a January 2026 classification framework for tokenized securities. The commission later issued an interpretation addressing which crypto assets are securities and when assets may cease to be subject to investment contracts. An Aug. 6 report on DTC’s tokenization service plans detailed the pilot’s U.S. securities coverage. Under the three-year no-action letter, eligible assets included Russell 1000 shares, ETFs tracking major indexes, and U.S. Treasury bills, notes and bonds. According to that report, DTCC planned an October 2026 service launch allowing participants to create tokenized representations of eligible securities held in DTC custody. Participants would be able to move those representations to approved wallets and convert between traditional and tokenized records. For transaction interfaces, Atkins said SEC staff issued an April statement on broker-dealer registration implications for certain interfaces used to prepare tokenized securities transactions. In August, the commission proposed Regulation Crypto Assets, which he described as an offering framework for certain investment contracts involving crypto assets. U.S. stock-token relief requires equivalent shareholder rights Among the agency’s most recent actions, Atkins cited the Innovation Exemption for trading tokenized National Market System stocks. Coverage published Sep. 20 examined the five-year stock-token exemption, which the SEC introduced on Sep. 17. According to the agency’s framework, qualifying tokens must carry the same company interest, dividend, voting and liquidation rights as conventional shares of the same class. Under that relief, the SEC excludes synthetic stock products and requires qualifying venues to stop token trading when the underlying stock is halted on its primary listing exchange. For third-party tokens, venues must notify the underlying issuer and wait at least 30 calendar days before listing; an issuer objection prevents trading from starting.
