The U.S. Securities and Exchange Commission on Oct. 1 proposed rules that would, for the first time, give registered investment advisers (RIAs) and regulated funds a defined federal pathway to custody crypto assets — including a conditional right to self-custody when no qualified custodian will h...
"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, Chairman, U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission on Oct. 1 proposed rules that would, for the first time, give registered investment advisers (RIAs) and regulated funds a defined federal pathway to custody crypto assets — including a conditional right to self-custody when no qualified custodian will hold a given token. The proposal (Release Nos. IA-7023, IC-36353; File No. S7-2026-35) amends the Investment Advisers Act of 1940 and the Investment Company Act of 1940, opens state-chartered trust companies as qualified custodians, and imposes a compliance framework the SEC itself estimates will cost roughly $433,833 per adviser per year.
The rule arrives nine months after the rescission of Staff Accounting Bulletin 121, which had forced banks to record custodied crypto as on-balance-sheet liabilities. Together, the two moves dismantle the regulatory architecture that constrained institutional crypto custody since 2022. The proposal is open for 60 days of public comment following Federal Register publication and is not yet final.
RIAs have allocated approximately $40 billion to crypto ETFs to date. The custody provider market is projected to grow from $2.1 billion in 2025 to $3.52 billion in 2026, a 67.8% compound annual growth rate, according to The Business Research Company. These numbers suggest the SEC is codifying infrastructure for capital flows that are already in motion.
The proposal creates two new custodial pathways for crypto assets held on behalf of advisory clients and regulated funds (registered management investment companies and business development companies):
Pathway 1 — Third-party custody via state trust companies. The rule would make state-chartered trust companies qualified custodians under the Advisers Act and permitted custodians under the Investment Company Act, subject to safeguarding policies, financial audits, internal controls, and asset segregation requirements.
Pathway 2 — Conditional self-custody. An adviser could hold a client's crypto assets itself, but only after determining in writing that no qualified custodian will maintain the asset. That determination must be reassessed quarterly. The adviser must demonstrate safeguarding expertise, protect private keys with joint authorization from at least two persons for each transaction, and obtain an independent auditor's report on internal controls within six months.
Both pathways apply to "crypto assets" as defined under federal securities law. The proposal does not extend to decentralized finance vaults or non-custodial wallet arrangements, according to analysis from Bitwise general counsel.
The custody proposal does not exist in isolation. It follows the Jan. 23, 2025, rescission of Staff Accounting Bulletin 121 via SAB 122. SAB 121, introduced in March 2022 under former Chair Gary Gensler, required institutions holding crypto for customers to record those holdings as liabilities on their balance sheets. The capital treatment effectively priced banks out of the custody business.
SAB 122 removed that requirement, permitting institutions to account for potential risks from safeguarding digital assets as contingent liabilities — consistent with existing GAAP guidance. The rescission applies to annual periods beginning after Dec. 15, 2024.
The sequence matters: SAB 122 removed the balance-sheet penalty; the October 2026 proposal supplies the affirmative regulatory framework. Without both, institutional custody expansion remains constrained on either the accounting or the compliance axis.
The self-custody fallback is narrow by design. The SEC's rule text requires the adviser to:
The SEC's economic analysis projects that approximately 823 advisers — about 5% of the 16,442 registered advisers as of the proposal date — would use the self-custody option. The remaining 95% would either not hold covered crypto assets or route around the self-custody fallback by using third-party custodians.
The agency estimates compliance costs at $433,833 per adviser per year for those electing self-custody. That figure excludes technology spending on key management infrastructure, hardware security modules, and operational redundancy.
The proposal's second structural change elevates state-chartered trust companies to qualified custodian status under the Advisers Act and permitted custodian status under the Investment Company Act. This move recognizes a category of institution that currently operates in crypto custody — Wyoming special-purpose depository institutions, New York-chartered trust companies, South Dakota trust entities — but lacked formal federal custodial recognition under securities law.
State trust companies would be subject to the same requirements as other qualified custodians: safeguarding policies, financial statement audits, internal controls reviews, and asset segregation. There is no transition period; the requirements apply immediately upon the rule's effective date.
This provision has direct implications for the competitive dynamics between crypto-native custodians (several of which hold state trust charters) and traditional banking institutions entering the custody market post-SAB 122.
The $433,833 annual compliance estimate for self-custody carries structural consequences. A firm with two crypto-holding clients and a firm with two thousand face identical fixed costs: the same quarterly reassessments, the same independent audit, the same dual-authorization infrastructure.
The SEC's own analysis acknowledges this: "The expense of safeguarding assets and arranging independent oversight may lead smaller firms to decline to offer the service." The rule does not formally exclude small advisers, but the economics do.
For context, RIAs have allocated roughly $40 billion to crypto ETFs. The iShares Ethereum Trust ETF holds $4.6 billion in RIA allocations. The Fidelity Wise Origin Bitcoin Fund (FBTC), Grayscale Bitcoin Trust ETF (GBTC), and Bitwise Bitcoin ETF (BITB) hold significant additional balances. Most RIA allocations remain below 1% of portfolio value, with early adopters landing at 1-5%.
If the rule's cost structure channels small advisers toward third-party custodians — and it likely will — the existing scale players benefit. Coinbase Custody holds approximately $300 billion in assets under custody. BitGo crossed $90 billion in mid-2025 and completed an IPO in early 2026 at a $2 billion valuation. Fireblocks has processed over $10 trillion in cumulative transaction volume across 2,400-plus institutional clients.
The proposal passed on the day before Commissioner Hester Peirce's departure from the SEC on Oct. 2, 2026. Peirce, long identified with crypto-friendly regulatory positions, supported the framework. In a September 2026 statement, she called crypto self-custody "a very fundamental right."
Commissioner Caroline Crenshaw dissented. In a statement titled "Poking Holes," Crenshaw argued the proposal diluted investor protections and that custodianship required formal rulemaking rather than staff guidance. Crenshaw had resigned from the SEC in January 2026.
ETF analyst Nate Geraci characterized the proposal as a "breath of fresh air," adding on X that the SEC was "moving quickly and aggressively" and that "some politicians are going to wish they passed the Clarity Act" — a reference to the stalled congressional crypto market-structure legislation.
An investor protection group, whose name was not specified in available reporting, stated the proposal "subjects investors to the very high risk of loss the SEC exists to prevent."
Peirce's departure leaves the SEC with two commissioners, raising questions about the agency's capacity to finalize the rule within the 60-day comment window and subsequent adoption timeline.
Several areas remain outside the proposal's scope:
The SEC's custody proposal is an infrastructure rule, not a market signal. It does not endorse crypto assets or predict their performance. It defines who can hold them, under what conditions, and at what cost.
The framework resolves a material gap: until Oct. 1, advisers managing crypto had no clear federal custody pathway. They operated in what Chairman Atkins termed "the grey of uncertainty created by custody rules crafted for a bygone era." That uncertainty imposed real costs — in legal risk, in compliance ambiguity, and in foregone institutional participation.
The economic consequences are distributional. The $433,833 annual compliance cost for self-custody is a fixed expense that scales with the rule, not with client count. Small advisers will outsource. Large custodians — Coinbase, BitGo, Fireblocks, Anchorage — will absorb the incremental demand. The custody provider market's projected 67.8% growth rate from $2.1 billion to $3.52 billion already reflects this trajectory.
Whether the rule survives the comment period intact remains open. The SEC is operating with two commissioners following Peirce's departure. The CLARITY Act's failure means this rulemaking proceeds without congressional backstop. And the 60-day clock has started.