SEC Floats Conditional Self-Custody Option for Advisers Holding Client Crypto

The U.S. Securities and Exchange Commission has proposed a conditional framework that would let investment advisers custody clients' cryptoassets directly when an eligible qualified custodian is not available, while requiring advisers to re-check custodian availability every quarter. Under the proposal, advisers would need to demonstrate the technical capability and controls to safeguard the specific cryptoasset. The SEC said private-key procedures would have to include joint authorization by at least two individuals. Client assets would also need to be segregated on-chain: each client's holdings would sit in one or more blockchain addresses containing only that client's assets. Advisers would be required to assess custody-related risks and prepare a report reviewing the controls and safeguards supporting the custodial arrangement. Quarterly account statements would have to disclose the blockchain addresses where client crypto is held and specify the networks associated with those addresses. The SEC also outlined a pathway for state-chartered trust companies to provide crypto custody services to investment advisers and regulated funds. The proposal would amend custody-related requirements under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. SEC Chairman Paul Atkins said existing rules were built around traditional assets, while custody services can lag newly issued cryptoassets. The agency emphasized the framework is not yet final and does not operate as an exemption from current custody obligations. A 60-day public comment period will begin after publication in the Federal Register, and the SEC said feedback could reshape conditions tied to self-custody, including operational safeguards and reporting requirements.