SEC Proposes a Path for Crypto Custody

The Securities and Exchange Commission on 1 October 2026 proposed amendments that would let registered advisers and regulated funds custody crypto assets that are a fund or a security. The SEC crypto custody rule proposal October 2026 appears as Release Nos. IA-7023 and IC-36353.

Chair Paul Atkins said it would give a compliant pathway where none existed. The text is a proposal, not a final rule, and it does not yet change what firms must do.

What happened

The package is aimed at two kinds of firms the Commission already supervises. A registered adviser manages money for clients. A regulated fund is a pooled vehicle under the fund statute.

The release prefixes line up with that split: IA for the Investment Advisers Act, IC for the Investment Company Act. Both statutes are named in the Commission's own materials on the proposal.

A custodian, in plain words, is a firm that holds assets so the owner does not keep them itself. Custody rules exist so that client property sits with a permitted holder, with records and controls, rather than in the adviser's own hands. Crypto fits that model badly. Control can rest on a cryptographic key.

A trust company chartered by a state may offer to hold the key. An adviser that holds the key itself can look, under the existing framework, like a firm that has taken custody without a permission written for this market.

Atkins presented the draft as that missing permission. Commissioners Hester Peirce and Mark Uyeda described the limits. An adviser could hold client crypto itself only after determining that no permitted custodian is available. Peirce said this self-custody means the adviser holds the assets, not the investor.

The client does not become the holder under another name. The firm holds the assets, and only as a fallback.

Peirce and Uyeda also said state trust companies could act as custodians, with two conditions. The adviser needs a reasonable basis to believe the state authorizes that custody. The firm also needs safeguarding procedures. A charter is not enough on its own.

The adviser has to be able to explain why the state's regime covers the activity, and it has to have procedures for protecting the assets. The chair's account is in his statement. Peirce's conditions are in her statement.

The Commission has not adopted the amendments. Publication does not, by itself, give advisers or funds a new operating permission. The pathway described on 1 October remains a draft until a final rule exists.

Why it matters

The practical problem Atkins named is where to put the asset. If crypto is a security, or if a client owns a fund interest recorded on a ledger, the adviser still needs a lawful holder. Without a written pathway, a careful firm has no obvious place to custody the position, and a careless firm risks breaking the custody rule it already lives under. The proposal is an attempt to write the pathway into both the advisers statute and the fund statute.

The scope is narrower than a headline about crypto custody can make it sound. The amendments, as described, cover crypto that is a fund or a security. They are not a rule for every digital token.

Assets that fall outside those legal categories are outside this draft. Treating the releases as a general custody code for the whole market would go past what the chair and the commissioners set out.

The self-custody wording is easy to reverse. In common use, self-custody means the investor holds the keys. Peirce used the term the other way. Under the proposal, self-custody means the adviser holds the assets.

The investor stays the client. The firm is the holder, and only after it decides that no permitted custodian is available. The draft does not, on her account, let the adviser skip that search because holding the keys would be more convenient.

State trust companies are not appointed by name as a new class of federal custodian. An adviser may rely on one when it has a reasonable basis for the state's authority and when the firm has safeguarding procedures. That is a judgment the adviser would have to stand behind. States do not authorize the same activities.

The reasonable-basis test is how the commissioners said that difference would be handled. The statements used here do not list the procedures. They do require that procedures exist.

What's next

No adoption date is given in the statements of Atkins, Peirce, or Uyeda, and none is supplied here. The status is the fact that can be stated cleanly. The amendments are proposed.

They are not final. Registered advisers and regulated funds are still under the custody rules already in force.

What the draft would do, if it were adopted in the form the commissioners described, is specific. It would open a pathway for crypto that is a fund or a security. It would let an adviser hold client crypto only after no permitted custodian is available, and that holding would be by the adviser, not by the investor. It would let a state trust company act as custodian only where the adviser can justify the state's authorization and can point to safeguarding procedures.

Readers who want the Commission's words, rather than a gloss, have them. Atkins describes the gap. Peirce and Uyeda describe the conditions. Together the statements are a record of a proposal made on 1 October 2026.

They are not a record of a decision. Until a final rule is issued, the pathway remains a description of what the Commission is willing to consider, not a permission firms may use.