SEC Proposes Self-Custody Option for RIA Crypto Holdings

Advisors could hold client digital assets directly under certain conditions, ending a regulatory impasse that has complicated crypto custody since 2023.

By the Family Office Real Estate Daily Desk·Monday, October 5, 2026·2 min read

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Can RIAs now self-custody client crypto assets, and what are the conditions under the SEC's new proposed rule?

The SEC proposed on October 2, 2026 to allow registered investment advisers to self-custody clients' crypto assets under certain conditions, including demonstrating that a permitted custodian is not available, possessing expertise in safeguarding each asset, and conducting annual cybersecurity reviews. The proposal drew sharply divided reactions, with the Investment Adviser Association praising a 'positive framework' and Better Markets warning the rule 'subjects investors to the very high risk of loss the SEC exists to prevent.'

Key facts

The SEC unveiled proposed changes on October 2, 2026 that would allow RIAs to self-custody clients' crypto assets if the adviser determines that a 'permitted custodian' is not available, and must verify this remains the case quarterly, according to the SEC's fact sheet.
Under the proposed SEC rule, self-custodying advisers must possess 'expertise' on safeguarding each crypto asset and must review cybersecurity systems 'no less frequently than annually,' according to the SEC's fact sheet.
The proposed SEC rule requires that private key management be addressed in safeguarding systems and that at least two people jointly authorize any crypto asset transactions.
Commissioner Hester Peirce, who is retiring from the SEC, said the 2023 custody rule 'suggested that many advisors were already on the wrong side of the law' when navigating crypto custody, and expressed hope that the new proposal 'foreshadows that a calm end to the regulatory roller coaster ride is imminent.'
Better Markets Securities Policy Director Benjamin Schiffrin said the SEC 'acknowledges the inherent conflicts of interest associated with self-custody' yet is 'willing to throw out the regulatory framework that has long protected investors and create a new regulatory regime with lax standards for the sole benefit of crypto companies.'
Josh Burton, director of Silver Regulatory Associates, called the new crypto rules the 'culmination of years of work' and noted that custody has 'long been the most challenging part of RIA compliance in crypto,' saying self-custody 'is often required for assets that qualified custodians don't support.'

SEC Proposes Self-Custody Option for RIA Crypto Holdings — Image: editorial illustration · Story sourced from WealthManagement.com

The Securities and Exchange Commission proposed changes on Thursday that would allow registered investment advisors to self-custody client crypto assets under certain conditions. The proposal follows Congress's failure last month to pass the CLARITY Act, a digital asset market-structure bill that would have detailed regulatory responsibilities for cryptocurrencies.

Under the proposed rule, advisors could self-custody client assets if they determine that a permitted custodian is not available to do so. Advisors must check whether this remains the case quarterly, according to the SEC's fact sheet on the changes. The rule mirrors the lighter-touch approach for the crypto space touted by Chair Paul Atkins and Commissioner Hester Peirce.

The agency argued that typical custodians may not be willing or able to hold certain crypto assets. Even custodians offering the service may not be able to support the large and continuously growing number of crypto assets in the market, including novel assets, the SEC said. Fidelity and Schwab offer crypto custody options. Earlier this year, Schwab unveiled direct trading access for Bitcoin and Ethereum, with Schwab acting as the client custodian.

The safeguarding systems would need to address private key management and joint authorization of any crypto asset transactions by at least two people, according to the proposal. Advisors must have expertise on safeguarding each crypto asset and must review cybersecurity systems no less frequently than annually. Account statements would be sent at least quarterly to clients with self-custodied crypto assets.

The SEC initially proposed changes to custodying assets in 2023 that would likely have required crypto assets to fall under the custody rule's requirements for a qualified custodian. In a statement, Peirce, who is retiring from the agency, argued the 2023 rule suggested that many advisors were already on the wrong side of the law when navigating crypto custody. She said she hoped the new proposal foreshadows that a calm end to the regulatory roller coaster ride is imminent.

Josh Burton, the director of Silver Regulatory Associates, argued the new crypto rules were the culmination of years of work. Custody has long been the most challenging part of RIA compliance in crypto, he said. For a long time, holding crypto assets with a qualified custodian was close to impossible for many managers, because so few qualified custodians actually existed by definition, Burton said.

The new rule would also allow advisors and regulated funds to maintain crypto assets with a chartered state trust company under certain conditions. The rule would also have impacts beyond crypto custody if passed as is, including specifying circumstances under which discretionary trading authority could be exempt from custody rule requirements. The Investment Adviser Association, an advocacy group of RIAs, lauded the SEC for trying to make the unnecessarily complex and burdensome custody rule more workable and effective.

The Deployment Angle

Family Office Real Estate Daily Desk · our analysis, not the source's

Family offices holding digital assets through third-party RIAs should request clarity on whether the advisor intends to self-custody or use a qualified custodian. Self-custody reduces counterparty risk but shifts operational and cybersecurity obligations to the advisor. If the advisor lacks a dedicated compliance team with blockchain expertise, the proposal's annual review and joint-authorization requirements may prove difficult to implement consistently.

The quarterly verification requirement creates a reporting checkpoint. Principals should ask advisors to document their custodian availability checks and provide the reasoning if self-custody remains necessary beyond the initial quarter. If a qualified custodian becomes available, the rule appears to require advisors to transition assets, which could trigger taxable events or delay liquidity.

For single-family offices managing crypto directly, the proposal offers a potential compliance safe harbor if the office registers as an RIA and meets the safeguarding standards. That path requires formal registration, which brings Form ADV filing, quarterly reporting, and SEC examination risk. The cost of hiring cybersecurity and compliance staff to meet the annual review and private-key-management requirements likely exceeds two hundred thousand dollars annually for a small office, making it viable only for families with crypto allocations above ten million dollars.

Questions this story answers

01What conditions must an RIA meet to self-custody client crypto assets under the SEC's proposed rule?

According to the SEC's fact sheet, the adviser must determine that a 'permitted custodian' is not available to hold the asset and must recheck this quarterly. The adviser must also have 'expertise' on safeguarding each crypto asset, review cybersecurity systems at least annually, implement private key management protocols, require joint authorization of transactions by at least two people, and send account statements to clients at least quarterly.

02Why is the SEC allowing self-custody instead of requiring qualified custodians for all crypto assets?

The SEC argued that typical custodians may not be willing or able to hold certain crypto assets, and that even custodians offering the service may not be able to support 'the large and continuously growing number of crypto assets in the market,' including novel assets. Josh Burton of Silver Regulatory Associates added that 'for a long time, holding crypto assets with a qualified custodian was close to impossible for many managers, because so few qualified custodians actually existed by definition.'

03How does the new SEC crypto custody proposal differ from the 2023 proposal?

The SEC initially proposed changes in 2023 that would likely have required crypto assets to fall under custody rule requirements for a qualified custodian. The new 2026 proposals mirror a lighter-touch approach for the crypto space associated with Chair Paul Atkins and Commissioner Hester Peirce, allowing self-custody under certain conditions rather than mandating qualified custodian use.

04What do critics say is wrong with the SEC's proposed crypto self-custody rule?

Better Markets, an investor protection organization, said the proposal 'subjects investors to the very high risk of loss the SEC exists to prevent.' Securities Policy Director Benjamin Schiffrin said there was 'no reason for the SEC to endanger investors' by allowing advisers to hold client crypto assets, contrasting this with traditional securities typically held at qualified custodians, and argued the agency is creating 'a new regulatory regime with lax standards for the sole benefit of crypto companies.'

05How long is the public comment period for the SEC's proposed crypto custody rule?

According to the article, the proposed rules will be open to public comment for 60 days after publication in the Federal Register.

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