SEC Opens a Crypto Custody Path Congress Did Not

The SEC on Oct. 1, 2026, proposed rules that would let investment advisers hold client crypto when no permitted custodian will take it. The vote is not a final rule. Public comment would run 60 days after the proposing release appears in the Federal Register.

Sixteen days earlier, the Senate blocked the Clarity Act, the market-structure bill that was supposed to write those lines into statute. The Commission is now drafting the custody path itself.

TODAY 🚨: The Commission proposed new rules and amendments to provide a tailored framework for the custody of crypto assets for registered investment advisers and regulated funds, i.e. registered investment companies and business development companies. pic.twitter.com/MP16NmQ6og

— U.S. Securities and Exchange Commission (@SECGov) October 1, 2026

Congress Left a Hole the Commission Is Filling

Chairman Paul S. Atkins said the agency had tailored crypto custody framework plans for registered investment advisers and regulated funds, meaning registered investment companies and business development companies. Release Nos. IA-7023 and IC-36353 sit under File No. S7-2026-35, with RIN 3235-AN46, issued as press release 2026-100.

Atkins said that since Bitcoin appeared in 2008, crypto had grown “from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure.” He added that the rules “have not kept pace” and that the proposal would give advisers and funds “a compliant pathway where none existed before.”

He also said more proposals are on the horizon and that he looks forward to helping President Trump “cement the United States as the crypto capital of the world.” That line is a political target. The text of this filing is narrower: it tries to tell a money manager where client coins can sit when a bank or broker-dealer will not hold them.

The Advisers Act changes would apply only to crypto assets that are funds or securities. The Investment Company Act changes would apply only to crypto assets that are securities or similar investments. Coins that sit outside those buckets are not the subject of this rewrite.

What the SEC Crypto Custody Proposal Allows

The proposal would let a registered adviser hold a client’s crypto itself only after finding that no permitted custodian is available, and it would let state-chartered trust companies serve as custodians after annual due inquiry. Banks and broker-dealers remain the default when they will take the asset.

TWO PATHS BESIDE THE OLD CUSTODY RULE

The agency fact sheet conditions make the first path a fallback, not a new default. An adviser would have to determine that a permitted custodian is not available before taking self-custody of a crypto asset, and again on a quarterly basis after that. If a custodian later appears for that asset, the quarterly clock is how the firm is supposed to notice.

For a regulated fund, the fund’s board would review the adviser’s written finding that no qualified custodian is available, initially and quarterly, and would have to determine, before the arrangement starts and annually after that, that the coins would receive reasonable care in the adviser’s hands. Self-custody here is a board-supervised exception, not a private-key hobby.

Hester Peirce Put Self-Custody in Quotation Marks

Commissioner Hester M. Peirce voted for the proposal and then took apart its most viral word. The threshold, she said, is the adviser’s finding, before taking “self-custody” and quarterly after that, that no permitted custodian is available to maintain the asset. She put the term in quotes on purpose.

The proposal uses the term in a way that does not reflect true self-custody by investors. Rather, it focuses on advisers acting as custodians for their clients’ assets and deems that situation to be “self-custody.” I would have preferred the term “shelf-custody” to distinguish adviser custody from situations in which investors custody their own assets without intermediation.

Hester M. Peirce, SEC Commissioner, Oct. 1, 2026 statement

Peirce added that true self-custody is not the right choice for everyone, but that many crypto owners prize holding their own assets, and that regulators should protect that right rather than force investors to leave coins with someone else. She then said she was digressing. The digression is the part retail readers will miss if they stop at the headline.

Joint authorization of any crypto asset transaction by at least two people would sit inside the adviser’s own shop. Each client’s coins would live in one or more addresses that store only that client’s assets. Control of the keys would remain with the firm. Seeing a balance on a public chain would not let the client sign a move if the adviser’s transfer process went dark. That is the operational reading of the dual-control rule, and it is why the marketing word and the legal mechanism are different things.

Sixteen Days Separate the Senate Vote From This Rule

The custody filing did not arrive in a quiet month. It landed inside a stretch in which Congress failed to set market structure and the agencies started using the authority they already had.

THE 16 DAYS AFTER CLOTURE

1. Sept. 15, 2026: The Senate records a 49-50 Clarity Act cloture vote, 11 short of the 60 votes needed to advance the bill.
2. Sept. 17, 2026: The SEC issues an Innovation Exemption, press release 2026-90, granting temporary, conditional relief so tokenized securities venues can trade tokenized NMS stock through permissioned automated market makers.
3. Oct. 1, 2026: The Commission proposes the adviser and fund crypto custody rules under IA-7023 and IC-36353.

Alex Thorn, head of firmwide research at Galaxy, wrote that all Democrats voted no, including Kirsten Gillibrand, Ruben Gallego, and Angela Alsobrooks, and that Republican Sens. Josh Hawley and Jerry Moran also voted no, each citing the stablecoin yield fight. Sen. Thom Tillis switched to no at the last minute so the cloture motion could be brought back later in this Congress. Sen. Chris Coons did not vote.

Atkins had already tied the exemption to that loss. On Sept. 17, 2026, he said Congress was unsuccessful in advancing the Clarity Act “despite the tireless efforts of many,” and that the Commission was moving “within its statutory authority” to let certain tokenized stocks trade onchain. CFTC Chair Mike Selig said after the vote that American investors deserve regulatory clarity and that his agency would help deliver market structure using existing statutory authorities. In the same stretch, the CFTC sent crypto asset rulemaking to the White House for review.

NovaDius President Nate Geraci wrote that regulators were moving quickly and aggressively, and that some politicians were going to wish they had passed the Clarity Act.

SEC continues to provide crypto *clarity*…

Proposes new framework for custody of crypto assets by investment advisors & funds.

Would permit crypto assets to be held in self-custody under certain circumstances & allow use of state trust companies as custodians for client &… pic.twitter.com/OyRHwxPZYy

— Nate Geraci (@NateGeraci) October 1, 2026

A statute would have been harder to unwind. Agency orders and proposed rules can be revised, stayed, or rewritten by the next Commission. That is the trade the failed cloture bought: speed now, less durability later.

State Trust Companies Get an Explicit Custodian Lane

The second path in the October proposal is the one most likely to matter for assets that already have a specialist custodian, just not a national bank. Some state-chartered limited purpose trust companies have been holding crypto for years while lawyers argued over whether they meet the federal definition of a “bank.” The fact sheet says that test is fact-specific under current law, which is a polite way of saying advisers have been guessing.

Staff had already tried to freeze that guess in place. On Sept. 30, 2025, the Division of Investment Management issued state-chartered trust no-action relief so registered advisers and 1940 Act funds could treat qualifying state trust companies as banks for crypto assets and related cash. That letter was staff policy. It could be withdrawn. The Oct. 1 proposal would put the same idea into a Commission rule, with conditions written in public.

Before hiring a state trust, and annually after that, the adviser or fund would need a reasonable basis, after due inquiry, for believing the firm is authorized by the relevant state banking authority to provide crypto custody. It would also need a reasonable basis for believing the trust maintains written policies reasonably designed to guard crypto and related cash against theft, loss, misuse, and misappropriation. The adviser or fund would have to receive and review the trust’s most recent annual audited financial statements and its most recent internal control report. Client and fund crypto would have to be segregated from the trust’s own assets.

Peirce said allowing eligible state trusts to serve as permitted crypto custodians would increase competition and expand investment options. Commissioner Mark T. Uyeda said those companies “have become important participants” in crypto custody and that naming the conditions they must meet gives advisers, funds, and custodians more certainty about how to structure the work. A state charter would no longer have to squeeze through a federal “bank” test on a letter from staff. That is a real shift for firms built under Wyoming, New York, and similar trust statutes, and it is a competitive opening next to the large bank custodians that already clear bitcoin for ETFs.

The 2023 Safeguarding Proposal Left Advisers Without a Legal Path

Uyeda used his statement to mark the distance from the last major attempt. On Feb. 15, 2023, the Commission proposed Safeguarding Advisory Client Assets, Release No. IA-6240. Uyeda said he had supported putting that draft out for comment and then criticized it for building a “no-win” setup for crypto even if advisers tried to comply in good faith.

The 2023 draft, he said, would have required advisers to keep crypto with a qualified custodian while casting doubt on whether any qualified custodian could show exclusive control over those assets. Staff Accounting Bulletin No. 121, issued March 31, 2022, had already pushed firms that safeguarded crypto to put those assets on the balance sheet. Uyeda’s account of the combined effect is blunt: advisers were told to use custodians who, for practical and accounting reasons, were largely unavailable or unwilling.

Peirce described the same stretch as a roller coaster. Without clear rules, and often without a viable qualified custodian, advisers were “gritting their teeth and holding on for dear life.” The 2023 proposal, she said, threw them for another loop: compliant crypto custody looked impossible, and the accompanying release suggested many advisers were already on the wrong side of the law. The proposing release for the new package notes that few traditional custodians have offered strong services across a substantial range of crypto assets, “in part due to prior Commission action and staff statements.”

That history is why self-custody shows up as a pressure valve. Uyeda said that for novel crypto assets, adviser or fund self-custody “may be the only available option when no qualified custodian is willing or able to hold those assets.” He also said the arrangement creates an inherent conflict of interest and that the adviser’s fiduciary duty still applies when it holds client crypto. The proposal does not pretend the conflict is gone. It tries to box it with reviews, reports, and statements.

Atkins put the market lag in one sentence: custodial capabilities may trail an asset’s deployment by many months. New tokens list. Wallets ship. Banks take longer. Under this draft, the adviser who wants that token for a client would document the gap, hold the keys under dual control, and keep asking every quarter whether a permitted custodian has caught up.

Dual Control, Separate Addresses, and a 60-Day Clock

If an adviser uses the self-custody path, the operational list is long on purpose. It is the price of keeping client coins off a bank platform.

SELF-CUSTODY CONDITIONS FOR ADVISERS

• Expertise file: The adviser must have, and document, safeguarding expertise for each crypto asset it holds, and must adopt systems against loss, theft, misuse, and misappropriation, reviewed at least annually, including private key management and joint authorization by at least two people.
• Address split: Each client’s crypto must sit in one or more network addresses that store only that client’s assets.
• Cyber review: The adviser must mitigate cybersecurity risk for self-custodied client crypto and review those controls, and how well they work, at least annually.
• Accountant reports: Within six months of taking self-custody, and annually after that, the adviser must obtain internal control reports from an independent public accountant on custodial control objectives, including safeguarding of crypto assets.
• Client paper: Account statements go at least quarterly to each client whose crypto the adviser self-custodies, and the adviser and client must agree in writing to treat each self-custodied crypto asset as a “financial asset” for extra protection under state law.

The same package would modernize older custody machinery that has little to do with tokens. The Advisers Act custody rule would be redesignated under Section 223. Discretionary trading authority would get a clearer exception. Inadvertent custody and standing letters of authorization would get limited carve-outs. Records kept on a crypto network could satisfy recordkeeping rules if they meet stated conditions. Form ADV and Form N-CEN would collect more detail on crypto custody and tokenized fund shares.

That is not live law. The comment period opens for 60 days after Federal Register publication, and the final text can change. Atkins said more regulatory proposals are coming. Geraci’s warning still hangs over the docket: the agencies are moving because the statute did not, and the details of who holds the keys will now be written in comment letters rather than in a bill the Senate would not advance.

Disclaimer: This article is news reporting and analysis of a proposed SEC rulemaking. It is informational only and is not investment, legal, tax, or compliance advice. It does not recommend buying, selling, holding, or self-custoding any crypto asset, fund share, or advisory product, and it does not tell an adviser how to satisfy custody, fiduciary, or recordkeeping duties. Readers should consult a qualified securities lawyer, registered adviser, or compliance professional before changing custody arrangements or allocating client capital. Figures, file numbers, and rule status reflect the Commission materials and public statements cited here as of the dates on those documents and may change when the proposing release is published, commented on, or adopted.