SEC Proposes Rules for Adviser Crypto Self-Custody

The proposal creates a tailored framework for registered investment advisers and regulated funds, including registered investment companies and business development companies. It operates under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, and will open a 60 day comment period once published in the Federal Register under filing number S7-2026-35.

Years of Ambiguity, One Rule

For years, the application of “qualified custodian” standards to crypto assets remained unclear, creating real hurdles for advisers exploring crypto strategies. Chairman Paul Atkins noted the crypto market evolved from a “niche curiosity to a multi-trillion-dollar asset class,” yet custody regulations never caught up.

The new rule directly addresses that gap. It allows crypto assets to be held in self-custody, provided specific conditions are met, a departure from the traditional assumption that a third-party custodian was required. State trust companies could now also serve as custodians for both client and fund crypto holdings.

Walking Back a 2023 Rule That Never Landed

This proposal effectively reverses a controversial February 2023 rule known as “Safeguarding Advisory Client Assets.” That earlier rule would have mandated all client assets, not just cash and securities, be placed with approved custodians. It was widely seen as targeting crypto specifically.

Critics, including Commissioner Hester Peirce, argued the 2023 rule narrowed compliant options for advisers holding client crypto rather than expanding them. The SEC withdrew that proposal in June 2025. The new framework also revises financial statement audit requirements for registered advisers and touches broker-dealer custodial services used by regulated funds, offering more flexibility than the direction the agency had been heading in.

From Staff Guidance to Formal Rule

The SEC has been working toward formalizing its crypto custody stance for a while now. In September 2025, the Division of Investment Management issued staff guidance stating it would not recommend enforcement against advisers treating certain state-chartered trust companies as banks for crypto custody, subject to disclosure and best-interest conditions.

Commissioner Caroline Crenshaw dissented at the time, arguing for formal rulemaking over staff positions rather than informal guidance. She resigned in January. This new proposal brings that earlier guidance into an actual rule, and it moves forward under existing SEC authority while the CLARITY Act market structure bill remains stalled in the Senate.

Hashlytics Take

Calling this a reversal is accurate, but it undersells how much work is still ahead. A 60 day comment period means the self-custody framework advisers are reading about today could look meaningfully different by the time it’s final, especially with industry groups likely to push for looser conditions and consumer advocates pushing back just as hard. The more telling detail here is Crenshaw’s dissent and resignation. Her argument that informal staff guidance shouldn’t substitute for actual rulemaking is exactly what the SEC is now doing retroactively, codifying a position it had already been applying unofficially for months. That’s less a bold regulatory pivot and more the agency catching its paperwork up to where it already was.