Overview
- The SEC published a draft custody rule under File No. S7-2026-35 that would update Adviser Act and Investment Company Act custody standards and that will open to public comment for 60 days after it appears in the Federal Register.
- The proposal, unveiled on Oct. 1, 2026, would allow registered investment advisers and regulated funds to hold client crypto in adviser self-custody only when no permitted custodian is available and only after meeting detailed safeguards.
- Required safeguards for adviser self-custody include a documented quarterly search for an outside custodian, joint authorization for transfers by at least two people, separate client addresses, independent control and cybersecurity reviews, and audited reports to clients.
- The draft formally recognizes qualifying state-chartered trust companies as custodians provided advisers verify state authorization, segregation of client assets, audited financials and written safeguards against theft and misuse, with annual reassessments.
- The rule builds on a withdrawn 2023 safeguarding proposal and a 2025 no-action letter, arrives as the SEC shifts its crypto rulemaking program, and could change how advisers and funds offer crypto exposure if industry comments prompt changes to the self-custody or state-trust provisions.