The Securities and Exchange Commission on October 1, 2026 proposed a rule that would allow qualified state-chartered trust companies to hold client crypto assets for registered investment advisers and regulated funds. The proposal, filed under Release No. S7-2026-35, arrived with a published fact sheet and would materially expand the pool of eligible crypto custodians if adopted.

The rule targets two distinct groups. The first is registered investment advisers (RIAs) that hold client crypto funds. The second is regulated investment companies that manage crypto securities and face separate custody requirements under the Investment Company Act.

What does the proposal actually change?

At its core, the rule addresses a definitional gap. The SEC's existing custody framework rests on two statutes — the Investment Advisers Act of 1940 and the Investment Company Act of 1940 — both written decades before private keys existed. The proposal would modernize those frameworks for digital assets and crypto securities.

The most consequential change concerns custodian eligibility. Under the proposal, qualified state-chartered trust companies could serve as permissible custodians for client digital assets, provided they meet defined conditions the SEC has laid out in the release.

The rule is not final. The SEC has opened a 60-day public comment window, which begins once the proposal is published in the Federal Register.

How did the SEC get here?

The proposal extends a regulatory trajectory the agency has followed for more than a year. On September 30, 2025, the SEC issued a no-action letter allowing certain state-chartered trust companies to be treated as qualified "bank" custodians for crypto assets under specific conditions.

Before that, the agency's custody statements centered on broker-dealers — specifically on how they handle crypto under Rule 15c3-3, the customer protection rule governing that segment of the market. The sequence is clear: broker-dealer guidance, then a no-action letter, now a formal proposed rule aimed at advisers and funds.

Why custody has been the sticking point

The research underpinning the proposal flags concerns about safekeeping, segregation and risk management — issues that function differently for crypto than for equities or bonds. A crypto asset is controlled by whoever holds its private keys; lose the keys and the asset is effectively unrecoverable.

Custody rules generally require client assets to be segregated from the custodian's own holdings, so client funds remain protected if the custodian fails. Translating that principle to key management and on-chain segregation is precisely where prior SEC staff positions left ambiguity.

Who wins if the rule is adopted?

Custody providers see the clearest near-term effect. If qualified state-chartered trust companies become formally permissible custodians, the field of eligible firms could widen substantially beyond the banks traditionally recognized under the Advisers Act.

For RIAs, the main benefit is regulatory certainty. Advisers seeking to offer crypto exposure need assurance their custody arrangements will withstand examination. A codified rule provides firmer footing than a staff no-action letter, which the SEC can withdraw or reinterpret at any time.

Registered investment companies form the second constituency. These funds manage crypto securities and carry their own custody obligations under the Investment Company Act, which the proposal would update for digital-asset holdings.

What comes next?

The comment period is the immediate battleground. Once the 60-day clock starts with Federal Register publication, industry participants will contest the operational details: which trust companies qualify, what segregation standards should require, and how advisers should diligence a custodian's safeguards. The shape of the final rule — and the timeline for its adoption — will depend heavily on what the SEC hears during that window.