SEC Proposes Rule to Modernize Crypto Custody for Investment Advisers

The Securities and Exchange Commission (SEC) has proposed a new rule to update how registered investment advisers (RIAs) and investment companies handle digital asset custody. Announced on October 1, 2026, under Release No. S7-2026-35, the proposal aims to modernize existing frameworks and builds on prior SEC guidance.

The proposed rule, which updates regulations originally established under the Advisers Act and the Investment Company Act, could allow qualified state-chartered trust companies to act as permissible custodians for crypto assets, provided they meet specific conditions. This expansion could significantly broaden the pool of eligible firms responsible for holding client cryptocurrency funds and crypto securities.

This regulatory step follows an SEC no-action letter from September 30, 2025, which permitted certain state-chartered trust companies to function as qualified “bank” custodians for crypto assets under particular circumstances. Prior SEC statements on crypto custody had predominantly focused on broker-dealers and their adherence to Rule 15c3-3, the customer protection rule.

According to the SEC, the research underpinning this proposal highlights concerns related to the safekeeping, segregation, and risk management of crypto assets. Unlike traditional securities, crypto assets are controlled by private keys, presenting unique security and management challenges. Standard custody rules generally mandate that client assets be kept separate from a custodian’s own holdings to safeguard them against the custodian’s financial distress.

For RIAs, the proposed rule offers enhanced regulatory clarity. Advisers seeking to integrate crypto exposure into client portfolios need assurance that their custody arrangements will satisfy regulatory requirements. A formal rule provides a more stable foundation than informal staff guidance or letters, which are subject to potential changes or reinterpretation.

The proposal is now open for a 60-day public comment period, which will begin upon its publication in the Federal Register. During this time, industry stakeholders are expected to offer feedback on key aspects, including the specific qualifications for trust companies, the requirements for asset segregation, and the methods RIAs should employ to verify custodian safeguards.

Key dates in this regulatory progression include the SEC’s September 30, 2025, no-action letter and the October 1, 2026, proposal of the new rule. The upcoming 60-day comment period marks the next significant phase before any final rule is established.

Several uncertainties remain regarding the rule’s final implementation. These include the precise criteria for qualifying state-chartered trust companies, the exact specifications for asset segregation, and the procedures for RIAs to suggest a custodian’s security measures. The outcome of the public comment period will be critical in shaping the final regulations.

Why This Matters

The materials describe a narrow update: The SEC proposed a new rule (Release No. Which specific state-chartered trust companies will qualify as permissible custodians.

Broader Context

Source materials place the factual news in this context: The existing rules come from two statutes, the Advisers Act and the Investment Company Act. Both were written long before anyone held a private key.