The US Securities and Exchange Commission has proposed allowing investment advisers and regulated funds to self-custody crypto assets when no permitted custodian is available.
The exception is designed partly for newer or less widely supported tokens, but would come with extensive operational requirements.
Self-custody would be a fallback rather than a free choice. Before holding an asset itself, an adviser would have to document that no permitted custodian can provide the service. That assessment would need to be repeated every quarter.
The proposal covers registered investment advisers, registered investment companies and business development companies. It remains subject to public consultation and has not yet taken effect. The comment period will run for 60 days after publication in the Federal Register.
Self-Custody Comes with Strict Controls
In the proposal self-custody is treated as a controlled institutional process, not simply permission for an adviser to manage private keys. Firms would need suitable expertise, dedicated client addresses and safeguards preventing one person from moving assets alone.
These arrangements imply annual control and cybersecurity reviews, including independent accountant reporting. Clients would receive quarterly statements, while fund boards would oversee both the decision to use self-custody and the protections applied to the assets.
The SEC would also formally recognise eligible state trust companies as crypto custodians. Advisers and funds would remain responsible for checking that a provider is authorised, maintains adequate controls and keeps client assets separate from its own holdings.
The custody plan follows the SEC’s August Regulation Crypto Assets proposal, which would create new fundraising exemptions for token issuers and define when a crypto asset may cease to be treated as part of an investment contract.
A Shift from the 2023 Safeguarding Plan
The initiative replaces the approach taken under former SEC Chair Gary Gensler. A 2023 safeguarding proposal sought to broaden qualified-custodian requirements but drew criticism because suitable custodians were unavailable for many crypto assets. The SEC withdrew that proposal in June 2025 without adopting it.
The new framework retains controls around custody but adds alternatives where conventional providers cannot support a particular asset. The SEC has not established when a final rule could be adopted.
Until then, the proposed self-custody route and the new treatment of state trust companies do not change the existing custody requirements.
This article was written by Tanya Chepkova at www.financemagnates.com.
Source: Finance Magnates
