The adviser holds the keys when no one else will

The Securities and Exchange Commission on Thursday proposed rules that would give registered investment advisers a lawful way to hold their clients' crypto assets themselves when no custodian will. The proposing release, numbered IA-7023, runs to 760 pages. It would also let advisers and funds use state-chartered trust companies as crypto custodians, and it rewrites a long list of older custody provisions. Comments are open for 60 days once it appears in the Federal Register. The chairman, Paul Atkins, said it gives advisers and funds "a compliant pathway where none existed before". Hester Peirce said she hoped it foreshadowed "a calm end to the regulatory roller coaster ride". Her departure from the commission was announced the same afternoon.

The problem it addresses is old. An adviser with custody of client funds or securities must keep them with a qualified custodian: a bank or savings association, a registered broker-dealer, a futures commission merchant or certain foreign financial institutions. For many crypto assets, the SEC's fact sheet says, such a custodian "may not be readily available", and the custodians that do serve the market have not been able to support every token. "With newly developed crypto assets, custodial capabilities may lag an asset's deployment by many months," Atkins said. The commission's 2023 attempt at the problem was withdrawn in June 2025. Commissioner Mark Uyeda described it on Thursday as having built a "no-win" scenario, telling advisers to use custodians that "for practical and accounting reasons, were largely unavailable or unwilling to serve in that capacity".

The new route has a gate. Before taking self-custody of any crypto asset, the adviser must determine in writing that it has "a reasonable basis, after due inquiry, for believing that no qualified custodian will maintain the crypto asset". The finding is made token by token; a blanket finding for all crypto is not allowed. It must be renewed at least every quarter. Cost is no excuse: "The cost of utilizing a custodian is not relevant," the release says. When a custodian does become available, the adviser must move the asset "as soon as reasonably practicable". No deadline is set. The release asks whether there should be one, such as the end of the following quarter.

Once through the gate, the adviser takes on a custodian's duties. It must document its expertise in safeguarding each asset and run systems that cover private key management, approval of every transaction by at least two people and a separate on-chain address for each client. It must review its cybersecurity controls each year and obtain an internal control report from an independent public accountant within six months, then annually. Clients get statements at least quarterly. Adviser and client must agree in writing to treat each asset as a "financial asset", which brings protections under state law. Where the client is a registered fund or business development company, the fund's board must review the adviser's custodian finding at the start and every quarter, and decide beforehand, and every year, that the asset would be held with reasonable care.

The release's own questions show where the argument will be. Question 36 asks whether the "reasonable basis" test "would enable advisers to avoid using a qualified custodian, even where qualified custodians are generally available". Question 38 asks the opposite: whether an adviser should be able to self-custody even when a custodian is available, if that custodian could not support the adviser's strategy, for example by limiting staking or trading. The commission then asks how such a finding could be made "in light of the adviser's conflict of interest in finding that its own custodial services are in the client's best interest." Uyeda said self-custody "creates an inherent conflict of interest". Peirce put the word in quotation marks. Because the arrangement is an adviser holding assets for clients, not investors holding their own, she said she would have preferred "shelf-custody".

The economic analysis puts numbers on who is affected. In December 2025, 16,442 advisers were registered with the SEC, with $177.0 trillion in regulatory assets under management. Staff found 136 of them reporting at least one custodian that appears to specialise in crypto, 39 such custodians in all. The market is concentrated: one custodian was named by 76 advisers and another by 62, while 22 of the 39 were named by a single adviser. Staff found one registered fund or business development company using such a custodian. The release says its list of specialist custodians is probably incomplete, and that for separately managed accounts advisers need only report a custodian holding at least 10 per cent of those assets, so the 136 is unlikely to capture every adviser holding crypto.

The second number came from a model. To estimate how many advisers give advice on crypto, staff converted the Form ADV Part 2A brochures of 15,964 advisers to text and asked a large language model, which the release names as "Anthropic Sonnet 5", to answer yes or no for each one, quoting its evidence. A second pass turned up one false negative and 334 false positives. A manual check of the remaining yes answers put the false-positive rate below 3 per cent. The result is 1,498 advisers that appear to give or plan to give crypto advice, which the release calls a likely lower bound. It also warns that the analysis is "stochastic in nature" and that a re-run could differ. The gap between 1,498 and 136 has more than one cause, the release notes: advising on an asset is not the same as holding it, and some holders use custodians that do not specialise in crypto.

Some of the plainer changes may last longest. The proposal would drop the 2009 requirement that accountants doing custody-rule work be registered with, and inspected by, the Public Company Accounting Oversight Board. The release notes that the board does not inspect those engagements anyway, and the accountant must still be independent. The crypto provisions reach only assets that are funds or securities, or for a registered fund a security or similar investment. The central test, though, is one the adviser applies to itself: no one will hold this, so we will. The SEC proposes to make that finding a required record, renewed every quarter: a document its examiners will be able to ask for.