2026 SEC Crypto Custody Guide: Compliance Paths for Self-Custody and State Trust Companies

 

The U.S. Securities and Exchange Commission voted on October 1 to propose a tailored custody framework for crypto assets, finally putting a rule text behind a question that has hung over the asset management industry for three years: where registered investment advisers and regulated funds are actually allowed to keep client crypto. According to the agency's press release, the proposal sits under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, would permit crypto assets to be held in self-custody under certain circumstances, and would allow state trust companies to serve as custodians for client and regulated fund crypto assets.

 

One clarification belongs up front. The self-custody in this proposal is not the kind where an individual holds their own private keys. Commissioner Hester Peirce put the term in quotation marks in her accompanying statement, explaining that it describes advisers acting as custodians for client assets, and said she would have preferred the label "shelf-custody" to keep the two apart. The regulated parties here are registered investment advisers, registered investment companies and business development companies, not retail wallets.

 

What makes the filing consequential is timing. After the Senate blocked the Clarity Act on a procedural vote on September 15, the Commission kept moving on its own rulemaking schedule, and custody is the heaviest piece in that sequence.

 

 

 

The rules target institutions, not retail holders. Coverage runs to registered investment advisers and regulated funds, meaning registered investment companies and business development companies. Nothing in the proposal restricts an individual investor from holding their own keys.

 

Adviser self-custody comes with a long condition list. Per the SEC's fact sheet, an adviser must first determine that no permitted custodian is available, repeat that determination quarterly, and then satisfy requirements covering expertise, private key management, joint authorization, address segregation, cybersecurity and independent internal control reports.

 

State trust companies would move from staff relief into rule text. The September 2025 no-action letter was a staff enforcement position. This proposal would write qualifying state trust companies into the custody rules, subject to due inquiry, audited financial statement review, internal control report review and asset segregation.

 

The non-crypto modernization matters too. The proposal would drop the Public Company Accounting Oversight Board registration requirement for accountants, create exceptions for discretionary trading authority, standing letters of authorization and inadvertent custody, and strip antiquated conditions from broker-dealer custody for funds.

 

This is a proposal, not a rule. The comment period runs 60 days after Federal Register publication under file number S7-2026-35, and the final text may differ from what is on the table today.

 

 

The Commission approved a release titled Adviser and Regulated Fund Custody Rules; Crypto Custody Rules, issued as Investment Advisers Act Release No. 7023 and touching Parts 270, 274, 275 and 279 of Title 17 of the Code of Federal Regulations. CoinDesk reported that the proposing release runs to 760 pages and reaches well beyond crypto.

 

Chairman Paul S. Atkins said in his statement that much of the existing custody framework predates the internet and contemplates only traditional assets, and that the proposal would give advisers and funds "a compliant pathway where none existed before." The agency's stated rationale is equally plain: since Bitcoin arrived in 2008 the asset class has grown into something investors actively seek exposure to, while the rules stood still.

 

 

The fact sheet draws the perimeter clearly. The Advisers Act custody rule applies to funds and securities over which an adviser has custody as defined in that rule. The Investment Company Act custody rules apply to a regulated fund's securities and similar investments, with regulated funds meaning registered investment companies and business development companies.

 

Asset scope is the limitation most easily missed. Peirce, quoting the release, noted that whether or not a crypto asset meets the definition of a security, the proposed Advisers Act amendments would apply only to crypto assets that are funds or securities, while the proposed Investment Company Act rules would apply only to crypto assets that are securities or similar investments. Not every token falls inside the custody perimeter, and the classification question still has to be answered asset by asset.

 

 

The Block picked up the same point, citing Peirce's clarification that the term refers to advisers acting as custodians for client assets rather than investors directly controlling their own crypto. She also used the statement to argue that regulators should protect an investor's right to hold their own assets rather than push them toward intermediaries.

 

For individual holders, nothing in the document changes the calculus. The choice between keeping coins on an exchange and moving them to a personal wallet is the same today as it was last week, and readers working through how to buy Bitcoin can start with a basic guide to where to buy Bitcoin. The entities whose workflows this proposal would actually rewrite are the SEC-registered firms managing other people's money.

 

 

The proposal would add a provision to the Advisers Act custody rule permitting advisers to hold crypto assets in self-custody for advisory clients, including regulated funds, for which they provide investment advice. The conditions attached are dense.

 

 

The threshold requirement is a determination, made before taking self-custody and repeated quarterly thereafter, that no permitted custodian is available to maintain the crypto asset. An SEC official told CoinDesk that such circumstances would likely be unusual once the rule is implemented, and that the most plausible case is a newly launched token custodians do not yet support. Peirce described the same condition as the gateway to the entire provision, pointing to the release's observation that few traditional custodians have offered broad crypto custody services in practice.

 

 

The second cluster of conditions covers operational capability. An adviser must have expertise regarding the safeguarding of each crypto asset and document the basis for that determination. It must adopt, implement and maintain systems to protect each asset against loss, theft, misuse and misappropriation, and review those systems and the effectiveness of their implementation at least annually. The proposal specifies that those systems address private key management and joint authorization of any crypto asset transaction by at least two people.

 

On segregation, each client's crypto assets must sit in one or more addresses on the crypto network holding only that client's assets. On security, the adviser must mitigate cybersecurity risk and review its controls at least annually. Within six months of taking self-custody and annually thereafter, the adviser must obtain internal control reports from an independent public accountant covering control objectives relating to custodial services, including safeguarding. Account statements go to each affected client at least quarterly.

 

A final condition is legal rather than operational. The adviser and client must agree in writing to treat each self-custodied crypto asset as a financial asset, which is intended to bring additional protections under applicable state law, pointing toward the securities intermediary framework in commercial law.

 

 

A new rule under the Investment Company Act would let a regulated fund maintain crypto assets in self-custody through its adviser, provided the adviser complies with the adviser self-custody rule and the fund's board oversees the arrangement.

 

The board's role is spelled out. Directors would review, initially and quarterly thereafter, the adviser's written report documenting why it believes no qualified custodian is available, and would determine before the adviser takes the asset, and annually after that, that the fund's crypto asset would be subject to reasonable care in the adviser's hands. In practice that shifts a meaningful share of the compliance burden onto independent directors.

 

 

The state trust company route is the other substantial opening. Under the fact sheet, before engaging a state trust company as a permitted custodian and annually thereafter, the adviser or fund must have a reasonable basis, after due inquiry, for believing the firm is authorized by the relevant state banking authority to provide crypto asset custody and that it maintains written policies and procedures reasonably designed to safeguard crypto assets and related cash from theft, loss, misuse and misappropriation. The adviser or fund must also receive and review the most recent annual audited financial statements and the most recent internal control report, and all client and fund crypto assets must be segregated from the custodian's proprietary assets.

 

This did not come from nowhere. On September 30, 2025, the Division of Investment Management issued a no-action letter stating it would not recommend enforcement where advisers and regulated funds treat qualifying state trust companies as banks for crypto custody, subject to conditions. Morgan Lewis noted that the relief followed a request from Simpson Thacher & Bartlett, and that Peirce and Commissioner Caroline Crenshaw issued opposing statements, with Crenshaw's objection centered on uneven oversight of state trust companies compared with federally chartered banks.

 

The legal distance between a staff letter and a rule is wide. The former is a non-binding enforcement posture that can be withdrawn; the latter, once adopted, becomes part of the regulation itself. Peirce argued that letting eligible state trust companies serve as permitted crypto custodians would increase competition while expanding both investor protection and investment options.

 

 

Beyond crypto, the proposal carries a backlog of conventional fixes with real consequences for traditional managers.

 

The Advisers Act custody rule would be redesignated under Section 223 of the Act and modernized in several ways. The proposal specifies circumstances in which authorized discretionary trading authority is excepted from the rule, directly answering the design feature that drew the most criticism in 2023. The requirement that independent public accountants be registered with and inspected by the Public Company Accounting Oversight Board would be eliminated. On audits, all audited financial statements would have to be prepared under U.S. Generally Accepted Accounting Principles, with an exception for foreign pooled investment vehicles, and delivery deadlines would be extended for funds of funds and funds of funds of funds formed toward the end of their fiscal year.

 

The proposal would also except an adviser from the independent verification requirement where custody arises solely from a standing letter of authorization, require that client notices sent on opening an account with a qualified custodian include the client's account number, and provide an exception for advisers with inadvertent custody of client funds or securities. The existing exception for registered investment companies would be extended to business development companies that elect regulation under the Investment Company Act.

 

 

Modernization on the fund side concentrates in three places. Antiquated conditions currently attached to broker-dealer custody would be removed, a rule on free cash accounts that is no longer used would be rescinded, and the proposal would specify that business development companies may use the Investment Company Act custody rules. The SEC's press release lists broker-dealer custodial services for regulated funds alongside adviser financial statement audits as the headline areas due for updating.

 

For fund managers the practical effect is less friction in counterparty selection. Simplifying the broker-dealer conditions means more funds can work within the existing framework instead of engineering around requirements written for a different market structure.

 

 

The proposal would amend recordkeeping rules under both statutes to add corresponding obligations for the self-custody, state trust company and modernization provisions. One element deserves separate attention: subject to certain conditions, records maintained and preserved on a crypto network would satisfy recordkeeping requirements under the Advisers Act and Investment Company Act recordkeeping rules. That is the first time a Commission rule text would treat on-chain records as a compliance artifact in their own right.

 

On disclosure, Form ADV and Form N-CEN would be amended to collect additional information on the custody of crypto assets and on tokenized fund shares. If adopted, that turns adoption of self-custody and state trust company arrangements, along with the tokenization of fund shares, into searchable public filing data rather than anecdote. The release also outlines revisions the Commission expects to make to its 2009 guidance on independent public accountant engagements.

 

 

To weigh this proposal properly, it helps to look at what it replaces. In March 2023 the Commission proposed the Safeguarding Advisory Client Assets rule, which would have redesignated the custody rule as Rule 223-1 and extended its reach to substantially all client assets in an advisory account while treating discretionary trading authority itself as custody. Industry opposition was heavy, and the proposal was formally withdrawn on June 12, 2025.

 

Peirce, citing the 2023 text, pointed out that because most crypto assets trade on platforms that are not qualified custodians, the earlier logic would generally have left an adviser in violation from the moment an asset moved to a trading platform until settlement. She described the intervening years as a regulatory roller coaster advisers simply had to hold on through.

 

The two documents therefore run in opposite directions. The 2023 version tightened scope and raised the bar, with the side effect that many advisers had nowhere lawful to put the asset. The 2026 version widens the set of permitted custody options, adding state trust companies and conditional adviser self-custody alongside qualified custodians, and rewrites the discretionary trading question as an exception rather than a trigger. The 2025 no-action letter addressed whether a practice would draw enforcement; this proposal addresses what the rule should say.

 

 

The comment period runs for 60 days after the proposing release is published in the Federal Register, under file number S7-2026-35, with submissions accepted through the SEC's comment file page. From there the Commission reviews feedback, decides whether and how to revise the text, and holds another vote before anything becomes final. That process is measured in quarters, not weeks.

 

Peirce used her statement to urge market participants to read the lengthy release and respond to its many requests for comment. With her departure from the Commission imminent, the proposal also serves as a closing chapter for the Crypto Task Force work she led.

 

The filing fits a pattern. On August 18 the Commission proposed Regulation Crypto Assets, a tailored offering framework for certain crypto investment contracts, and on September 17 it issued the Innovation Exemption, a five-year conditional grant of relief for on-chain trading of tokenized NMS stock. As CNBC reported, the Senate blocked the Clarity Act from advancing on September 15, and regulators responded by filling the gap through administrative rulemaking instead of legislation.

 

Market reaction has been muted. Yahoo Finance market analysis put Bitcoin near $83,000 entering October, still well below its all-time high, with daily ETF inflows down sharply from levels approaching $1 billion. Farside Investors flow data shows U.S. spot Bitcoin ETFs recorded roughly $89 million of net outflows on October 1. Custody rules are a structural variable on a multi-quarter horizon, while near-term pricing follows rates and flows, and readers tracking the latter can follow the Bitcoin price page on MEXC or the market roundups on its BTC Carnival event page.

 

 

 

For James Mitchell, the significant part of this proposal is not the phrase self-custody but the admission underneath it: for a meaningful slice of the crypto market, a qualified custodian simply does not exist. The 2023 version treated custody as a control problem and ended up keeping compliant institutions out. The 2026 version treats it as an availability problem, which is why state trust companies and conditional adviser custody both appear. That shift in framing is worth more than any single clause.

 

The likeliest misreading is the label itself. Advisers holding client assets and individuals holding their own keys are different activities, and Peirce coined "shelf-custody" precisely because she expected the confusion. The second thing being overestimated is how often the self-custody route will actually be used. Stack the availability test, quarterly re-determination, dual authorization, dedicated addresses, annual internal control reports and board oversight together, and the process carries real cost. A rational manager reaches for it only in the window where a newly launched asset has no custodian at all. The provision with broad practical reach is the state trust company route, because it converts a staff enforcement posture into rule text, and that upgrade in legal certainty is substantive.

 

Three things are worth tracking from here, none of them price. The first is the shape of the comment file, particularly where custodians, state banking regulators and investor protection groups disagree, since those fault lines were already visible around the 2025 relief. The second is whether the Form ADV and Form N-CEN amendments survive, because if they do, adoption rates for self-custody, state trust custody and tokenized fund shares become measurable public data instead of market chatter. The third is how the conditions on on-chain recordkeeping are defined, which will decide whether that provision is operational or merely symbolic.

 

The cross-asset lesson is that custody infrastructure usually decides whether capital can arrive long before price does. Spot Bitcoin ETFs were built on top of qualified custody arrangements in the first place, and adviser-managed separate accounts, registered funds and business development companies together represent a far larger pool than the ETF channel. Writing the custody path down makes allocation structurally possible for that pool. It is a necessary condition rather than a sufficient one, and whether the proposal is adopted, in what form, and against what rate backdrop will all shape the outcome. Any firm expectation built on proposal-stage text deserves a discount.

 

 

 

No, because it is not aimed at individuals. Self-custody in this document means a registered investment adviser holding crypto assets for clients, not an investor controlling their own private keys. Commissioner Peirce made that distinction explicitly and argued that regulators should protect an investor's right to hold their own assets. For retail holders, nothing about custody choices changes, and the proposal imposes no new obligations on them.

 

 

Registered investment advisers and regulated funds, with regulated funds meaning registered investment companies and business development companies. The Advisers Act custody rule reaches client funds and securities over which an adviser has custody, while the Investment Company Act rules reach a fund's securities and similar investments. Only crypto assets that qualify as funds or securities, or as securities or similar investments, fall inside the custody perimeter.

 

 

The gateway condition is determining that no permitted custodian is available, before taking custody and quarterly thereafter. Beyond that, the adviser needs documented safeguarding expertise, systems covering private key management and joint authorization by at least two people, client assets in dedicated addresses, cybersecurity controls reviewed annually, independent accountant internal control reports within six months and annually after that, quarterly account statements, and a written agreement treating the asset as a financial asset.

 

 

Many state-chartered trust companies already provide crypto custody in practice, but under current rules deciding whether one meets the statutory definition of a bank requires a fact-specific analysis of state and federal law. The September 2025 no-action letter addressed that uncertainty at staff level. This proposal would write qualifying state trust companies into the rules themselves, subject to authorization checks, policy and procedure review, audited financials, internal control reports and asset segregation.

 

 

Not yet, since this is a proposal. The comment period runs 60 days from publication in the Federal Register under file number S7-2026-35. After comments close, the Commission evaluates feedback, decides on revisions and must vote again to adopt a final rule. Everything described today is proposed text, and the final version may differ.

 

 

A good deal. The Advisers Act custody rule would be redesignated under Section 223, the PCAOB registration requirement for accountants would be eliminated, and exceptions would be created for authorized discretionary trading, standing letters of authorization and inadvertent custody, alongside amendments to the audit provisions. On the fund side, antiquated broker-dealer custody conditions would be removed, an unused free cash account rule rescinded, and business development companies expressly permitted to use the Investment Company Act custody rules.

 

 

Custody rules are a structural variable rather than a near-term price driver. Bitcoin traded near $83,000 entering October, daily ETF inflows had fallen well below the roughly $1 billion peaks seen earlier, and U.S. spot Bitcoin ETFs saw about $89 million of net outflows on October 1, with flows driven mainly by rate expectations. A clearer custody path should, in theory, widen the pool of advisory accounts and registered funds able to allocate, but only once a final rule exists.

 

 

The information above is provided for general market and regulatory analysis only and does not constitute investment advice, financial advice, legal advice, tax advice or a recommendation to trade. The rules discussed are at the proposal stage, have not been adopted and are not in effect, and the final text may differ materially from what is described here, so firms facing compliance questions should consult qualified legal and compliance professionals. Prices of crypto assets, equities and other related financial assets can fluctuate sharply, and past performance, technical indicators and on-chain data do not guarantee future results. Readers should conduct their own research and make decisions based on their own financial circumstances, investment objectives and risk tolerance. The MEXC Crypto Pulse team accepts no liability for any direct or indirect loss arising from the use of this information.

 

 

James Mitchell specializes in technical analysis, market trends, and trading strategies for both Bitcoin and altcoins. Based in London, he has over 10 years of experience in financial markets. Before joining MEXC Learn, James worked as a senior analyst at a leading European investment firm, where he developed expertise in risk management and quantitative trading. His transition to cryptocurrency markets began in 2017, and he has since become recognized for his data-driven approach. He holds a Master's degree in Financial Economics from the London School of Economics. His analytical approach combines traditional technical analysis with on-chain metrics to provide readers with actionable insights.

 

Areas of Expertise: Technical Analysis, Market Trends & Cycles, Trading Strategies, Bitcoin & Altcoin Analysis, Risk Management.

 

 

 

Want the fastest access to MEXC's latest updates? Join our official Telegram group now!

MEXC Platform: Download App | Zero Fee Trading | Buy USDT Now

Join MEXC Community: X (Twitter) | Telegram | Discord

Get Insights: MEXC Learn | Terms of Service | MEXC Blog | MEXC News

Account Verification: Understand KYC | How to Complete KYC

External Content Platforms: Substack | Medium | Paragraph | LinkedIn | X(News)