Key Highlights:
- The SEC is considering safeguards for advisers and funds that directly custody crypto assets.
- State trust companies could provide outside custody under initial and annual reviews.
- The proposal would also update audit, recordkeeping and disclosures for tokenized fund shares.
SEC Proposal Targets Crypto Custody and Self-Custody Safeguards
The Securities and Exchange Commission is considering regulatory changes that would establish conditions for investment advisers and regulated funds to directly safeguard crypto assets. The package would also allow state trust companies to provide external custody services, subject to authorization, security and asset-segregation requirements.
“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.”
Advisers seeking eligibility for direct safekeeping would face quarterly reassessments, while their security systems would be reviewed at least annually. Transfers would require authorization from at least two people, and each customer’s holdings would be assigned to separate blockchain addresses. Investors would receive quarterly statements and sign agreements recognizing the tokens as financial assets under applicable state law.
State Trust Companies Could Provide Outside Crypto Custody
State trust companies—institutions chartered by state banking regulators—could safeguard assets for advisers and funds after initial and annual reviews of their authorization and security policies. Advisers or funds would also examine audited financial statements and internal control reports. Customer holdings would remain separate from the custodian’s own assets.
Existing state supervision already addresses asset separation. Guidance issued by the New York Department of Financial Services on Sept. 30, 2025, emphasized separate accounting and the segregation of customer crypto assets. Those safeguards apply to licensed virtual currency businesses and New York limited purpose trust companies involved in crypto custody.
Federal treatment of these institutions has also divided SEC commissioners over the protections needed for crypto custody. In September 2025, SEC staff offered conditional assurances that they would not recommend enforcement action. Commissioner Hester M. Peirce supported that flexibility, while Commissioner Caroline A. Crenshaw criticized its legal basis and the investor safeguards involved.
Proposed Audit and Recordkeeping Rules Cover Funds and Broker-Dealers
The proposed amendments extend beyond crypto safekeeping. They would address financial statement audits for registered investment advisers and custodial services provided by broker-dealers for regulated funds. Broker-dealers are firms that buy and sell securities for customers or for their own accounts. The changes would apply under the Investment Advisers Act of 1940 and the Investment Company Act of 1940.
An adviser taking direct custody would need to obtain an independent accountant’s internal control report within six months and annually after that. The package would also revise recordkeeping and disclosure requirements, including the conditional use of blockchain records and reporting on tokenized fund shares, which represent fund ownership through blockchain technology.
The draft entered White House review in August ahead of the October proposal. The Office of Information and Regulatory Affairs assessed the draft; the office operates within the White House Office of Management and Budget.
Atkins later described his request for rules permitting conditional adviser self-custody during remarks on Sept. 14 at the Solana Policy Institute Summit. He also called for state trust companies to be allowed to safeguard assets held by advisers and funds.
Why This Matters
The proposal would address how crypto assets are held, separated, audited and recorded when advisers and regulated funds have exposure to them. It would also connect crypto custody with existing requirements for internal controls, financial statements and investor disclosures. The approach reflects the expansion of crypto from a niche market into a multi-trillion-dollar asset class while leaving the proposed framework subject to public review.
Public comments will remain open for 60 days after the SEC’s proposing release is published in the Federal Register, the federal government’s official publication for rules and notices.
Frequently Asked Questions
What would the SEC proposal allow?
It would establish conditions for advisers to directly safeguard crypto assets and would permit state trust companies to provide outside custody for advisory and fund holdings.
What safeguards would apply to direct crypto custody?
Requirements would include quarterly eligibility reassessments, at least annual security reviews, two-person authorization for transfers, separate blockchain addresses for each customer’s holdings and quarterly investor statements.
How long will the public have to comment?
Public comments will be accepted for 60 days after the SEC’s proposing release appears in the Federal Register.