SEC Opens New Route for Funds and Advisers to Hold Crypto, Including Limited Self-Custody

Frank Joaquin

Date: October 1, 2026

The SEC proposed a crypto-specific custody framework Thursday that could materially change how U.S. investment advisers and regulated funds hold digital assets.

The proposal covers registered investment advisers, registered investment companies and business development companies. The SEC says the framework is designed to replace rules written primarily around traditional assets with requirements specifically addressing crypto custody. SEC, proposed crypto custody framework

The most consequential provision is not simply regulatory recognition of crypto custody.

The proposal would permit advisers and regulated funds to self-custody crypto assets under certain circumstances. It would also allow state trust companies to serve as custodians for client and fund crypto assets. SEC

SEC Chairman Paul S. Atkins framed the proposal around a practical problem facing investment firms: crypto assets can launch months before traditional custodians develop infrastructure capable of supporting them.

Existing custody requirements generally require advisers and funds to use approved custodians. That can leave investment managers unable to hold a newly issued asset even when the investment itself is otherwise permissible.

The proposed self-custody mechanism is intended to provide a limited route around that gap.

Custody Becomes Infrastructure Policy

Crypto custody has been one of the less visible barriers separating institutional portfolios from onchain markets.

Buying Bitcoin through an ETF solves custody for the investor because the fund handles the underlying asset. Direct ownership by investment advisers and regulated funds raises a different set of questions involving private keys, operational controls, asset segregation, audits and responsibility when something goes wrong.

The SEC’s proposal attempts to bring those questions explicitly inside federal securities regulation.

It would also modernize requirements concerning financial statement audits for registered investment advisers and broker-dealer custodial services used by regulated funds. SEC

The proposal does not create unrestricted self-custody.

CoinDesk reported that SEC officials expect the self-custody provision to be used in relatively unusual circumstances, including situations where an investment manager wants exposure to a newly launched crypto asset that established custodians do not yet support. CoinDesk

Part of a Larger SEC Rewrite

The custody proposal is not an isolated rule.

Atkins placed it alongside several crypto initiatives advanced by the SEC during the past year, including guidance concerning tokenized securities, a regulatory interpretation addressing when crypto assets constitute securities, Regulation Crypto Assets and the agency’s recently introduced Innovation Exemption. SEC

That sequence is beginning to form an identifiable architecture.

One part addresses asset classification. Another addresses issuance. Another addresses tokenized securities and trading. Custody now addresses how regulated institutions actually control the assets after acquisition.

The SEC says the proposal is intended to allow regulated funds to offer investors access to a wider range of crypto-related investment strategies. SEC

The Proposal Is Not Yet Law

The framework remains a proposal.

A 60-day public comment period will begin following publication of the proposing release in the Federal Register. The Commission can revise the rule before any final vote. SEC

Industry comments will likely concentrate on what circumstances justify self-custody, what operational safeguards firms must maintain, which state trust companies qualify and how liability should work when private-key or infrastructure failures occur.

Those details will determine whether self-custody becomes a narrow exception or a genuinely useful institutional pathway.

TOKEN RECON ASSESSMENT

The SEC is moving beyond the question of whether regulated institutions should have crypto exposure. It is beginning to write the plumbing required for them to hold crypto directly.

That is a more consequential development than another ETF approval.

ETFs package crypto inside familiar securities infrastructure. A workable custody framework potentially allows advisers and funds to interact with a wider set of assets without waiting for every token to become an exchange-traded product.

The self-custody provision deserves the closest attention. If the final rule gives institutions a practical mechanism for holding unsupported or newly launched assets while maintaining auditable controls, the investable crypto universe available to regulated capital could expand.

The next intelligence point is the actual proposing release and comment record. Custody standards, eligibility requirements and liability provisions will determine how significant today’s proposal ultimately becomes.