The SEC crypto custody proposal is out. On Thursday, October 1, the Securities and Exchange Commission proposed a framework that would let registered investment advisers and regulated funds hold crypto under limited self-custody conditions, and use state-chartered trust companies as custodians. It is a proposal, not a final rule, and it arrived one day before Commissioner Hester Peirce's last day at the agency.
What the SEC is proposing
The SEC proposed new rules and amendments under the Investment Advisers Act and the Investment Company Act. They apply to registered investment advisers and to regulated funds, which the SEC defines as registered investment companies and business development companies. The proposing release runs about 760 pages, according to CoinDesk.
Chairman Paul Atkins said the plan would give advisers and funds "a compliant pathway where none existed before." His argument is that the current custody rules were written with traditional assets in mind, so crypto has been stuck in a gray area. That gray area has had a practical cost. Advisers have struggled to find a qualified custodian for particular tokens, and many investors have reached Bitcoin through ETFs because those are the easiest wrapper to hold.
The proposal gives advisers two new options.
Limited self-custody comes with a long list of conditions
"Self-custody" here does not mean what it usually means in crypto. Peirce clarified that it refers to the adviser acting as custodian of client assets, not to an investor holding their own keys. The proposal would let an adviser hold client and fund crypto without a qualified custodian, but only if a long list of conditions is met. According to the SEC's fact sheet and the proposing release, the adviser would need:
a written determination, made before taking custody and every quarter after, that no permitted custodian is available for that asset
documented expertise in safeguarding each crypto asset, including key management, with at least two people authorizing every transaction
each client's assets held at addresses that store only that client's assets
at least annual reviews of cybersecurity controls
an internal control report from an independent accountant within six months of starting, and every year after
account statements to clients at least quarterly
a written agreement with the client treating each asset as a financial asset, with the adviser acting as a securities intermediary under state law
For regulated funds, the fund's board would have to review the adviser's determination at the start and every quarter, and decide each year that the assets would get reasonable care under this arrangement. The proposal also says that receiving an airdrop would not by itself break the custody rules, provided the conditions are met.
An SEC official told CoinDesk the circumstance should be unusual in practice, and that a newly launched token that custodians do not yet support is the likeliest example. In other words, this is a fallback, not a new default.
State trust companies get a clear lane
The second pathway names state trust companies as eligible custodians. Right now they are not on the list of permitted custodians. Advisers and funds have had to argue that a given trust company counts as a bank, which is a fact-heavy question under state and federal law. In September 2025, SEC staff said in a no-action letter that they would not recommend enforcement action against advisers treating state trust companies as banks under certain conditions. A staff letter has no force of law, so the proposal would put the idea into a rule.
Before using a state trust company, and every year after, an adviser or fund would need a reasonable basis to believe it:
is authorized by its state banking regulator to custody crypto
has written policies to guard against theft, loss, misuse and misappropriation
The adviser would also have to review the company's latest audited financial statements and internal control report. Client crypto would have to be kept separate from the company's own assets. Regulated funds would need a custody agreement that provides for that segregation.
More than a crypto rule
The release also rewrites parts of the broader custody framework. The main adviser custody rule would move from rule 206(4)-2 to a new rule 223-1. The proposal would drop the requirement that accountants doing custody-rule work be registered with the PCAOB. For funds, it would widen the broker-dealers that can hold assets and let required records be kept on a crypto network if they can be produced promptly in a readable format. The release says the Commission considered, but is not proposing for now, changes tied to crypto trading, and it includes a discussion of decentralized finance.
Timing, and the Peirce departure
The proposal comes just before Peirce, who has led the SEC's Crypto Task Force since it began, leaves the commission on Friday, October 2. CoinDesk reports she is heading to a teaching job in Virginia. With her gone, the SEC will have two commissioners, Atkins and Mark Uyeda. Earlier this week the agency changed its rules so that two commissioners are enough to form a quorum.
The context matters too. The CLARITY Act, the crypto market structure bill, failed a Senate procedural vote on September 15, by 49 to 50 against a 60-vote threshold, according to FintechWeekly. Ethics language sank it, not the SEC and CFTC split. Since then the SEC has been the main route for new U.S. crypto rules. CoinDesk notes that the custody proposal follows August's Regulation Crypto Assets proposal and last month's Innovation Exemption for tokenized securities, and that it covers every major item on Atkins's original crypto agenda.
What happens next
The proposal is open for public comment for 60 days. That clock starts when the proposing release is published in the Federal Register, not on October 1, so the deadline will land later than a simple 60-day count from Thursday. Commenters will focus on how "no permitted custodian is available" gets defined, and on who ultimately counts as a qualified custodian. Law firms and custody providers will want clarity on that second point most. The final rule could differ from this draft.
Bitnxt's view
The headline says "self-custody," but the real story is the second pathway. Letting state trust companies serve as custodians turns an informal staff position into a rule, and that is what institutions need before allocating real money. A no-action letter can be revisited by the next set of staff. A final rule is harder to unwind.
The self-custody pathway looks generous, but the conditions say otherwise. Quarterly proof that no custodian exists, two-person approvals, accountant reports and board oversight make it expensive and narrow. We read it as a safety valve for new tokens, not a way for asset managers to bypass custodians. If anything, it reminds firms how hard key security is. This past week alone, Bitget lost about $387.5 million, NEAR Intents lost $3.8 million and MetaMask pulled validators after a security incident. Those cases are different from each other, but each is a reminder that who holds the keys and the systems around them matters more than any rulebook.
There is also a political caveat. A regulator with two members is moving fast on a rulebook that Congress failed to write. That is legal for now, but rules written without legislation can be rewritten by the next commission. For institutions that need decades-long certainty, that is a real limit on how much comfort this proposal can offer. Still, the direction is clear, and a final version with a broad "qualified custodian" definition would be a quiet win for the whole custody industry.
What to watch next
Federal Register publication, which starts the 60-day comment clock
Comment letters from large asset managers, banks and crypto-native custodians
How the SEC defines "no permitted custodian is available"
Whether the final rule survives with two commissioners and a possible change in leadership
This article is for information only and is not financial or legal advice.
