SEC proposes letting advisers and funds self-custody crypto, use state trust companies

The U.S. Securities and Exchange Commission on Oct. 1 proposed rules that would let investment advisers and funds hold their clients' crypto themselves. The proposal amends custody rules under the Investment Advisers Act and the Investment Company Act, both enacted in 1940. It would allow an adviser that meets set conditions to self-custody client crypto when no permitted custodian is available, and would recognize state-chartered trust companies as crypto custodians.

Current rules require advisers to keep client assets with a "permitted custodian" such as a bank or broker-dealer. In its fact sheet, the SEC said that "unlike more traditional assets, a permitted custodian under the current custody rules may not be readily available to hold certain crypto assets," adding that custodians may not yet offer services for newer tokens.

Self-custody only when no custodian is available

The SEC attached several conditions to self-custody. An adviser would have to determine that no permitted custodian is available before taking custody of a crypto asset, and every quarter after that. Key conditions listed in the fact sheet include:

• Documenting its safeguarding expertise for each crypto asset, and having systems for private key management and joint authorization of any transaction by at least two people
• Holding each client's crypto in one or more addresses that store only that client's assets
• Obtaining an internal control report from an independent public accountant within six months of taking custody, and annually after that
• Sending account statements to clients at least quarterly, and agreeing in writing to treat the self-custodied crypto as a "financial asset" under state law

Regulated funds such as mutual funds could self-custody the same way through their adviser. The fund's board would have to review the adviser's report on why no custodian is available, initially and every quarter, and determine each year that the crypto would be subject to reasonable care.

State trust companies treated like banks

The proposal also spells out how state trust companies can serve as custodians. Until now, whether such a firm counts as a "bank" under the custody rules has required a case-by-case analysis of state and federal law. On Sept. 30, 2025, staff in the SEC's Division of Investment Management said in a no-action letter responding to law firm Simpson Thacher & Bartlett that they would not recommend enforcement against advisers or funds that treat such trust companies as banks. The new proposal would turn that position into a Commission rule.

The proposal requires four due-diligence checks plus an asset-segregation requirement. Before engaging a state trust company and every year after, an adviser or fund would need a reasonable basis to believe the company is authorized by its state banking regulator to provide crypto custody and has written policies to safeguard crypto assets, and would have to receive and review its latest audited financial statements and internal control report. Client crypto would have to be kept separate from the trust company's own assets.

Revisiting a custody rule shelved after 2023

The SEC proposed a broader "safeguarding" rule in February 2023 but never adopted it, and formally withdrew it on June 12, 2025. Beyond crypto custody, the new proposal would drop the requirement that accountants doing custody-rule work be registered with the Public Company Accounting Oversight Board (PCAOB), allow records kept on a blockchain to satisfy recordkeeping rules under certain conditions, and add questions on crypto custody and tokenized fund shares to Form ADV and Form N-CEN.

"Since the advent of Bitcoin in 2008, the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure. Unfortunately, our rules and regulations have not kept pace."

Paul Atkins, SEC Chairman

In a separate statement, SEC Commissioner Hester Peirce said the proposal's "self-custody" differs from investors holding their own assets without an intermediary, writing, "I would have preferred the term 'shelf-custody.'" She also said, "Regulators should zealously protect investors' right to self-custody and not attempt to force investors to custody their assets with someone else." The comment period runs for 60 days after the proposal is published in the Federal Register.

At 10:31 a.m. KST on Oct. 2, bitcoin traded at 115,339,000 won on Upbit's Korean won market. Binance's price at the same time was $84,592, putting the kimchi premium (the gap between prices on Korean exchanges and global markets) at about 0.24% on Upbit.