The Securities and Exchange Commission proposed a crypto-specific custody framework on Thursday that admits the 1940 Act never contemplated private keys — and would let advisers hold the coins themselves when no qualified custodian will.
File S7-2026-35 would amend custody rules under the Investment Advisers Act and the Investment Company Act, rules Chairman Paul Atkins noted have not been rewritten for decades and were built for traditional assets. The proposal would allow limited self-custody by advisers and funds when a permitted custodian is not available, with quarterly determinations, cybersecurity, expertise, reviews, and disclosures, fiduciary duties still attached. It would add state-chartered trust companies as permitted custodians after due inquiry. Comments are due 60 days after Federal Register publication. Atkins called it a compliant pathway where none existed, part of an effort to make the United States "the crypto capital of the world."
The package sits beside, and is not, September's Innovation Exemption for tokenized NMS stocks. Staff have already issued a DTC tokenization no-action letter, a tokenized-securities taxonomy, and an August proposal for Regulation Crypto Assets. The custody gap was the practical one: new tokens can outrun bank vaults by months, leaving registered advisers in a gray zone their clients still want filled.
The second-order shift is who is allowed to hold the keys when the qualified custodian says no. Self-custody with a quarterly memo is not deregulation. It is an admission that the vault model failed the asset class. State trust companies get a federal on-ramp. Advisers get a lawful workaround. Investors get a rulebook that finally names the hardware wallet — and a comment file that will decide how much of that workaround survives.
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