SEC Proposes New Crypto Custody Rules to Enhance Market Competition

The U.S. Securities and Exchange Commission (SEC) has proposed significant changes to the regulatory framework governing crypto custody, aiming to modernize rules that have lagged behind the evolving digital asset landscape. This proposal, which is set to take effect on October 1, 2026, introduces two key changes: the allowance of self-custody for certain crypto assets and the inclusion of state trust companies as eligible custodians.

The SEC's initiative seeks to address the limitations of existing custody requirements, which were originally designed for traditional assets like stocks and bonds. By broadening the pool of custodians, the proposal aims to enhance competition and provide registered investment advisers and funds with more options for holding digital assets.

One of the most notable aspects of the proposal is the provision for self-custody. Advisers would be permitted to hold crypto assets themselves, but only when no qualified custodian is available to do so. This self-custody option comes with stringent requirements, including documented cybersecurity controls and regular audits, which could lead to significant operational costs for advisers.

Additionally, the SEC's proposal formalizes the role of state trust companies in the crypto custody space. These entities, which have previously operated in a regulatory gray area, will now be recognized as legitimate custodians, subject to compliance with safeguarding policies and internal controls. This change could level the playing field for crypto-native custodians like Coinbase and Gemini, which have established regulated custody businesses around trust charters.

As the SEC continues to refine its approach to crypto regulation, industry stakeholders are encouraged to provide feedback during the 60-day public comment period following the proposal's publication in the Federal Register. This feedback will be crucial in shaping the final rules and determining the future of crypto custody in the U.S.