- The SEC proposed changes that could let investment advisers hold clients’ crypto when no eligible custodian is available.
- The proposal would also allow state trust companies to serve as crypto custodians under specific conditions.
The SEC has proposed changes to crypto custody rules that could remove a barrier for some investment advisers offering digital asset investments to clients. Published on Thursday, the proposal would let advisers hold clients’ crypto assets themselves when no eligible crypto custodian is available, subject to conditions, and would also permit state trust companies to act as custodians. SEC Chair Paul Atkins said the crypto asset market has grown into a multi-trillion-dollar asset class while regulations have not kept pace. The proposal also includes updates to audit, recordkeeping and disclosure requirements, with the agency set to accept public comments for 60 days after publication in the Federal Register.
Why crypto custody has been a hurdle
The SEC proposal focuses on a practical problem for advisers: finding a qualified custodian for certain tokens. When no permitted custodian is available, advisers can face limits on what investments they are able to offer clients. The regulator said this has held some businesses back from giving clients exposure to digital assets.
The Digital Chamber previously raised similar concerns. In a May 2025 submission to the SEC, it said some advisers had declined token allocations or asked portfolio companies to keep those allocations until custody became available. SEC Commissioner Hester Peirce described the uncertainty around these rules as a regulatory roller coaster for advisers waiting for workable custody standards.
SEC proposal on crypto custody for advisers
Under the proposal, advisers would be allowed to hold clients’ crypto assets themselves, but only if they establish that no permitted custodian is available for each asset. They would also need to reassess that conclusion every quarter. If a custodian later becomes available, the assets would have to be transferred as soon as reasonably practicable.
The self-custody option would come with safeguards tied to private keys, cybersecurity and the separation of each client’s holdings. Any transfer of a self-custodied crypto asset would require approval from at least two authorized individuals. SEC Commissioner Mark Uyeda said the proposal recognizes that adviser custody creates an inherent conflict of interest and that fiduciary duties would still apply.
State trust companies and fund oversight
The proposal would also allow state trust companies to provide crypto custody, but only under separate conditions. A state trust company would need authorization from the relevant state authority to provide crypto custody. It would also need reasonable procedures to protect crypto assets from loss, theft or misappropriation.
Additional requirements would include audited financial statements, internal control reports and segregation of client holdings from the company’s own assets. The SEC also said regulated funds could keep crypto assets in self-custody with their investment adviser if the adviser meets the self-custody requirements and the fund’s board oversees the arrangement.
Broader rulemaking and comment period
Beyond crypto custody, the SEC package proposes changes to audit, recordkeeping and disclosure rules. The agency will take public comments for 60 days after the proposal appears in the Federal Register, opening the process for feedback on how these requirements should work in practice.
The proposal comes as the SEC and Commodity Futures Trading Commission push for clearer crypto rules using their existing powers after the CLARITY Act failed to advance in the Senate last month. The CFTC has submitted a crypto-market proposal for White House review, while the SEC has also opened a path for trading tokenized stocks.
Conclusion
The SEC’s latest proposal could reshape crypto custody for investment advisers by creating a path to self-custody when no eligible custodian is available and by allowing state trust companies to serve in that role under defined conditions. The plan includes quarterly reassessments, transfer requirements when custodians become available, and safeguards covering private keys, cybersecurity and asset separation. It also extends to regulated funds under board oversight and adds changes to audit, recordkeeping and disclosure rules. With a 60-day public comment period ahead, the proposal marks another step in the agency’s effort to set clearer crypto rules through its existing authority.
Disclaimer
The information provided in this article is for informational purposes only and should not be considered financial advice. The article does not offer sufficient information to make investment decisions, nor does it constitute an offer, recommendation, or solicitation to buy or sell any financial instrument. The content is opinion of the author and does not reflect any view or suggestion or any kind of advise from CryptoNewsBytes.com. The author declares he does not hold any of the above mentioned tokens or received any incentive from any company.
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