SEC Proposes Overhauled Custody Rules and Crypto Custody Framework
SEC's October 1, 2026 proposal would build a crypto custody framework, permit limited adviser self-custody, and revise Advisers Act and Investment Company Act custody rules; comments due December 7, 2026.
Per Sullivan & Cromwell's October 22, 2026 memo, the SEC proposed amendments on October 1, 2026 to the Investment Company Act and Investment Advisers Act custody rules, creating an express federal framework for crypto custody. The proposal would permit state trust companies to act as crypto custodians subject to initial and annual diligence, and allow adviser self-custody only where no qualified custodian is available, with private-key controls requiring dual authorization including a management person, independent control reports, and added board oversight for regulated funds. It would also add an exception for advisers with discretionary trading authority, including non-DVP settlement of loans and privately offered securities; ease audit requirements, including dropping PCAOB-registration conditions for accountants and extending fund-of-funds delivery deadlines; and expand broker-dealer custody options for funds while clarifying BDC reliance. The proposal would redesignate Rule 206(4)-2 as Rule 223-1 and, according to the memo, leaves uncertificated-loan relief unaddressed. It follows the SEC's 2025 withdrawal of its 2023 safeguarding proposal. Advisers and fund boards should test existing custody agreements, Form ADV answers, and key-management arrangements against the proposal and consider commenting before December 7, 2026.