SEC proposes conditional crypto self-custody for advisers and funds
SEC proposal would let advisers and funds self-custody some crypto when no qualified custodian is available, with controls and board oversight.
By The Coin Wire Editorial2 min read
The U.S. Securities and Exchange Commission proposed rules on Oct. 1 that would let registered investment advisers and regulated funds self-custody certain crypto assets when no qualified custodian is available. The SEC’s announcement also describes a new route for state trust companies to act as custodians. The proposal would create options for assets that advisers say can be difficult to place with qualified custodians, while leaving the adviser responsible for safeguarding assets it holds.
The proposal’s scope is narrower than “crypto” generally: the SEC says the Advisers Act changes would cover crypto that is a client fund or security, while the Investment Company Act provisions would cover regulated funds’ crypto securities or similar investments. It is a proposal, not a rule in force.
When could an adviser hold crypto itself?
An adviser would first have to determine in writing that a qualified custodian is unavailable, then revisit that determination at least quarterly. Under the SEC’s proposed rule, the adviser would also need expertise in safeguarding each asset and systems addressing private-key management, approval of transactions by at least two people, and separate on-chain addresses for each client’s assets. The proposal adds cybersecurity controls, annual reviews and an independent accountant’s internal-control report, as well as quarterly account statements.
For a regulated fund, the adviser’s safeguards would not be the only check. The fund’s board would oversee the arrangement, review the adviser’s finding that no qualified custodian is available, and assess whether the asset would receive reasonable care. SEC Commissioner Mark Uyeda identified the core trade-off: self-custody may be the only available route for some assets, but it creates conflicts of interest and the adviser’s fiduciary duty still applies.
How does this compare with the existing custody route?
The current framework centers on qualified custodians. In a 2023 custody proposal, the SEC sought to require advisers to use them; Uyeda later said that approach could leave advisers without a workable option when custodians were unwilling or unable to hold some crypto. The new proposal would add conditional adviser custody as an exception, alongside state trust companies that meet proposed conditions. Those routes widen the choices, but they place different demands on oversight: a third-party custodian holds the assets, while adviser self-custody puts key controls and operational risk inside the advisory firm.
What happens before the framework could take effect?
The SEC’s comment period will run for 60 days after the proposal appears in the Federal Register. The commission will then have to consider comments before deciding whether to adopt a final rule. The next signals are whether the final conditions retain the quarterly custodian-availability test and key-control requirements, and how boards assess the risks when a fund’s own adviser holds its crypto.