The US Securities and Exchange Commission has proposed a 760 page custody framework that would let investment advisers and funds hold crypto for clients through conventional qualified custodians, newly approved state trust companies and, in rare cases, direct self custody by the adviser itself.
The plan begins a 60 day comment period. After that, the agency expects revisions, another internal vote and a phased compliance window that runs through 2027, so nothing in the draft binds any firm today. The proposal still stands as the agency’s most comprehensive attempt yet to fold digital assets into the same custody plumbing that protects stocks, bonds and fund shares.
Three custody pathways
The draft opens a route for a registered adviser to hold client crypto directly when no external qualified custodian supports a given token, a scenario common with freshly launched assets. The adviser must be the sole controller of the keys, crypto cannot be commingled with the adviser’s own holdings or any proprietary fund, and quarterly notice to clients would confirm that level of access.
State trust companies would become eligible qualified custodians under the Investment Advisers Act and permitted custodians under the Investment Company Act, an opening for charters in states such as South Dakota, Wyoming, New York and Nevada. The package also removes outdated insurance, bank and savings association references everywhere else in the custody rule, updates the internal controls and audit statements an adviser must obtain, and tightens the definition of a qualified custodian.
What becomes harder
Coverage extends to any crypto asset that is a security, a commodity, or an interest in a pooled investment vehicle, with a carve out for stablecoins a US regulator or private issuer has fully redeemed. Direct registration on an issuer’s own books would no longer count as a custody arrangement. Staking through an exchange or pool stays permissible, but sole staking brings extra reporting as well as new penalties for maintaining knowledge of a validator’s method of credential creation.
| Custody pathway | Status in the draft |
|---|---|
| Bank, broker dealer or futures commission merchant | Still permitted, references updated to current law |
| State trust company | Newly eligible for crypto custody |
| Adviser self custody | Allowed only when no external custodian supports the token, full key control, quarterly notice |
| Issuer books and records | No longer counts as custody |
| Stablecoins | Carved out when a named authority promises full redemption |
Why the SEC moved now
The Commission framed the draft as the completion of a 2025 to 2026 series of actions covering tokenized securities, alternative trading systems, innovation exemptions and asset classification. Chair Paul Atkins said the current custody rules were written for a market of stocks and bonds and never imagined billions in digital assets held across hundreds of trading venues. Former commissioner Hester Peirce, who led the first crypto task force, called the proposal a milestone for a market finally operating under clear SEC jurisdiction rather than an enforcement patchwork.
The crypto task force had pushed for this since its early 2025 recommendations. Industry comment letters from custodians, exchanges and fund managers shaped the carve outs, including the limited adviser self custody path and the state trust company expansion, and the agency said those two things pushed the package over the line internally.
The agency’s posture on custody has flipped almost completely in three years. Under the prior leadership, the Commission charged advisers that held crypto directly or through non traditional custodians as a violation of the custody rule, treating the lack of a compliant pathway as grounds for settlement rather than rulemaking. That enforcement history is part of why this draft arrives so detailed. Firms that signed those settlements are watching for whether the new rules include grandfathering language for assets they were forced to divest, and the proposal text does not yet answer them.
Still unresolved
The comment window surfaces several open questions the SEC has not answered. One is whether a broker dealer can remain a qualified custodian while also operating an exchange or lending business tied to the same assets. Another is how an adviser proves exclusive key control when a sub custodian, cloud signer or co signer sits in the middle. Record keeping and audit standards also lag behind the structural provisions in the draft, so a bulk of the work falls to the Commission staff and outside auditors once the final form is set.
The drafting avoids a single sweeping requirement in favor of what officials called a proportional set of controls. In practice that means an adviser holding a client’s bitcoin at a large custodian faces a very different set of obligations from one writing its own wallet software, and the boundaries are designed to keep small advisers from exiting the market entirely.
Fund complexes, traditional wealth managers and exchange traded product issuers were the first groups to ask for this framework after 2024, when client demand for direct spot exposure exposed how hard it was to satisfy the legacy rule text. Their structured products, from spot bitcoin ETFs to on-chain money market funds, depend on this custody base, and the agency’s staff said the framework was written to accommodate them without rewriting the investor protection standard at the core of the 1940 acts.
The SEC will hold an open meeting on the proposal before the comment window ends, and an interim set of frequently asked questions for advisers is expected within the first 30 days. Nothing is finalized until the Commission votes again after review.