SEC Self-Custody Rules for Crypto Assets Draws Divisive Reactions

Donachie, P. (2026, October 2). SEC self-custody rules for crypto assets draws divisive reactions. WealthManagement.com. https://www.wealthmanagement.com/regulation-compliance/sec-proposes-self-custody-rules-for-crypto-assets

• The SEC proposed custody rule changes that would allow RIAs to self-custody clients' crypto assets if they determine a permitted custodian is not available, a condition they must recheck quarterly.

• Advisors using self-custody would need expertise in safeguarding each crypto asset, at least annual cybersecurity reviews, private key management, two-person authorization of transactions, and quarterly client account statements.

• The SEC argued that typical qualified custodians may be unwilling or unable to hold the large and growing number of crypto assets, although Schwab and Fidelity already offer crypto custody options.

• The proposal would also let advisors and regulated funds hold crypto assets with a chartered state trust company and would specify when discretionary trading authority could be exempt from custody rule requirements.

• The proposal replaces the stricter 2023 approach with the lighter-touch stance favored by Chair Paul Atkins and retiring Commissioner Hester Peirce, and it follows last month's failure of the CLARITY Act in Congress.

• The Investment Adviser Association praised the effort to make the custody rule more workable, while Better Markets said it subjects investors to a very high risk of loss and benefits only crypto companies.

• The proposed rules will be open for public comment for 60 days after publication in the Federal Register.

Knote: Why would an advisor do this? It's like taking custody of the egg from Alien: kind of cool but lots of unknowns and downside.