SEC Proposes Tailored Crypto Custody Framework for RIAs and Funds
The SEC formally proposed a tailored crypto custody framework for registered investment advisers and regulated funds on October 1, 2026, completing a two-part regulatory stack with SAB 121's rescission and opening a 60-day public comment period.
The most significant structural regulatory unlock for institutional Bitcoin access since the spot ETF approval removes the compliance barrier that kept advisers and funds on the sidelines.
Key takeaways
- The SEC formally proposed on October 1, 2026, a tailored custody framework for registered investment advisers and regulated funds, permitting conditional self-custody and state-chartered trust companies as qualified custodians.
- The proposal opens a 60-day public comment period after Federal Register publication and is not yet final; the definition of "qualified custodian" written into the final rule will determine whether Bitcoin-native custody firms benefit or only large bank custodians do.
- Combined with the January 2025 rescission of SAB 121, this completes a two-part regulatory stack: the accounting barrier is gone, and the compliance pathway now exists.
The SEC formally proposed new rules on October 1, 2026, providing a tailored custody framework for registered investment advisers (RIAs) and regulated funds, including registered investment companies and business development companies. SEC Chair Paul Atkins described it as offering "a compliant pathway where none existed before."
The proposal, filed under RIN 3235-AN46 and available in full as ia-7023.pdf, allows self-custody under specific limited circumstances and permits state-chartered trust companies to serve as qualified custodians for client and fund crypto assets. A 60-day public comment period opens upon Federal Register publication.
What the Rule Actually Does
The proposal effectively supersedes the Gensler-era 2023 Safeguarding Rule, which stalled without finalization and left RIAs operating without a clear compliance road. Atkins acknowledged the structural gap plainly: "custodial capabilities may lag an asset's deployment by many months."
Self-custody is permitted only when an adviser certifies quarterly that no qualified third-party custodian is available. Advisers electing that path must meet cybersecurity protocols and asset segregation requirements. This is a narrow carve-out, not a broad green light.
State-chartered trust companies are now explicitly eligible to serve as qualified custodians. Bitcoin-native custody infrastructure built under state trust charters has operated in regulatory gray area for years. If the final rule preserves this language, it potentially elevates those firms into the same tier as bank custodians, reshaping the competitive landscape for institutional custody.
The Two-Part Regulatory Stack
SAB 121, rescinded in January 2025 via SAB 122, removed the balance-sheet liability treatment that made bank custody of Bitcoin prohibitively expensive. That cleared the accounting barrier. This proposal is the second structural move: it gives RIAs and regulated funds the operational legal pathway to use the custody infrastructure SAB 122 unclogged.
The two moves together form a complete regulatory stack. The custody overhaul that was first submitted to the White House Office of Management and Budget on August 25, 2026 (first reported by Bloomberg Tax) has now cleared the formal proposal stage. Corporate treasuries, pension advisers, and RIAs that previously had no compliant path to Bitcoin exposure through a regulated custodian now have one, pending finalization.
The CLARITY Act failed its Senate cloture vote 49-50 on September 15, 2026, leaving a legislative vacuum. The SEC is filling it through rulemaking, which carries real risk: a future administration can unwind it. The institutional Bitcoin custody infrastructure built under this framework needs to be durable enough to survive the next political cycle.
Banks operating under Basel III capital rules still face prohibitive treatment of Bitcoin on their books. The SEC framework helps RIAs and funds; it does not solve the bank-custody problem entirely.
One tension worth tracking: every rule that clarifies how institutions hold Bitcoin through regulated wrappers accelerates the bifurcation between the ETF/adviser crowd and the individual who self-custodies today. The proposal's "self-custody" language applies to advisers certifying quarterly that no custodian is available. It is not a green light for an RIA to hold keys on a client's behalf as standard practice.
What to Watch
The final rule's definition of "qualified custodian" is the single most consequential variable. If it is written narrowly to favor only large bank custodians, the Gensler-era bottleneck recreates itself under a friendlier label. If state trust companies are preserved in the final text at the same tier, Bitcoin-native custody firms gain a structural regulatory advantage they have not previously held. The 60-day comment window is where that fight happens.
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Frequently Asked Questions
Does the SEC's "self-custody" provision mean an RIA can hold a client's Bitcoin keys directly?
Not as standard practice. The self-custody carve-out applies only when an adviser certifies, on a quarterly basis, that no qualified third-party custodian is available for the relevant assets. Advisers electing that path must also satisfy cybersecurity protocols and asset segregation requirements. It is a last-resort mechanism, not a general permission for advisers to custody client Bitcoin directly.
What happened to the Gensler-era 2023 Safeguarding Rule?
The 2023 proposed Safeguarding Rule never reached final form and is effectively superseded by this proposal. The Gensler-era rule drew broad industry opposition and left RIAs without a workable compliance framework for crypto. The Atkins-led SEC framed this new proposal as providing "a compliant pathway where none existed before," a direct acknowledgment that the prior rule had failed to resolve the ambiguity.
Which custody firms would qualify as a "state trust company" under the proposed rule?
The proposal identifies state-chartered trust companies as eligible to serve as qualified custodians. The final rule text will determine which specific entities meet the criteria. Bitcoin-native custody providers operating under state trust charters have long argued they should qualify alongside bank custodians. Whether the final rule confirms that position is the central question for the competitive structure of institutional Bitcoin custody going forward.
