SEC Proposes New Crypto Custody Rules, Opening Door to Self-Custody for Funds

The U.S. Securities and Exchange Commission proposed a new custody framework on October 2, 2026, that could reshape how regulated financial entities hold digital assets. The proposal would amend custody requirements under the Investment Advisers Act of 1940 and Investment Company Act of 1940 to account for how crypto assets are held and transferred.

For the crypto industry, the headline change is conditional self-custody. Investment advisers and regulated funds could safeguard crypto assets themselves under specified conditions — a significant departure from rules designed for traditional securities held by qualified custodians.

What the proposal includes

The SEC's framework addresses three custody pathways:

Self-custody for advisers and funds. Under specified conditions, regulated entities could hold crypto directly rather than outsourcing to third-party custodians. This reflects the technical reality that digital assets can be controlled through private keys, not just institutional vaults.

State trust companies. The proposal would allow state-chartered trust companies to custody crypto for investment advisers and regulated funds, expanding the pool of eligible custodians beyond federally chartered institutions.

Broker-dealer updates. For regulated funds, the SEC would update requirements for custody through broker-dealers and other service providers. Financial statement audit requirements for registered investment advisers would also be addressed.

Why this matters

Crypto custody has been a regulatory bottleneck. Institutional adoption stalled partly because existing custody rules assumed securities held by banks and trust companies with decades of precedent. Digital assets do not fit neatly into that framework.

The SEC's March 2026 interpretation on crypto asset securities set groundwork for this proposal. Thursday's release moves from interpretation to formal rulemaking — though the rules are not yet effective.

The comment period

The SEC will accept public comments for 60 days following publication in the Federal Register. The final framework could differ substantially based on input from advisers, funds, custodians, investors, and market participants.

Industry groups will likely push for broader self-custody permissions. Consumer advocates may argue for stricter safeguards. The outcome will shape institutional crypto adoption for years.

Market context

The proposal arrives during a volatile week for crypto markets. U.S. spot bitcoin ETFs ended a nine-day, $3.1 billion inflow streak with $148.7 million in outflows on October 1. Regulatory clarity on custody could influence whether institutional money returns or pauses.

Ethereum's zkAPI mainnet launch and ongoing DeFi security incidents add to a news cycle where infrastructure and regulation are advancing simultaneously.

What investors should watch

If you hold crypto through regulated advisers or funds, custody rules determine who actually controls your assets and what protections apply if something goes wrong. Self-custody by regulated entities shifts risk profiles — potentially reducing counterparty risk from custodians while increasing operational risk from key management.

The proposal is not final law. But it signals the SEC is building a crypto-specific regulatory architecture rather than forcing digital assets into securities-era templates unchanged.

For builders and investors, the 60-day comment window is the moment to engage. The rules that emerge will define institutional crypto custody for the next cycle.