Summary
On October 1, 2026, the Securities and Exchange Commission (the “SEC”) proposed amendments to the custody rules under the Investment Company Act of 1940 (the “Investment Company Act”) and the Investment Advisers Act of 1940 (the “Advisers Act”) (the “Proposed Rules”).
The Proposed Rules would establish new custody arrangements for crypto assets while also revising existing custody requirements for registered investment advisers and regulated funds (registered management investment companies and business development companies (“BDCs”)), including those that do not invest in crypto assets. Among the most significant proposed changes are the following.
- Permitting new crypto custody arrangements for advisers and regulated funds, including (i) custody of crypto assets with state trust companies, subject to specified safeguards, and (ii) adviser self custody of crypto assets where no qualified custodian is available, subject to additional safeguarding and, for regulated funds, board oversight requirements.
- A new custody rule exception for advisers exercising discretionary trading authority, including for transactions that do not settle on a delivery versus payment (“DVP”) basis.
- Easing certain audit requirements, including by expanding accountant eligibility and extending audit delivery deadlines for certain private funds.
- Expanding broker dealer custody options for regulated funds and clarifying the application of custody rules to BDCs.
The Proposed Rules follow the SEC’s 2025 withdrawal of its 2023 “Safeguarding Advisory Client Assets” rule proposal, which would have expanded the scope of the Advisers Act custody rule to cover substantially all client assets and imposed additional requirements for qualified custodians affecting the availability of custodians for crypto assets. In contrast, the current Proposed Rules would retain the Advisers Act custody rule’s existing coverage of client “funds or securities.” In statements accompanying the current proposal, Commissioners Uyeda and Peirce highlighted the additional flexibility for crypto custody under the Proposed Rules and contrasted it with the practical difficulties posed by the 2023 proposal.
Regulated funds and registered investment advisers should assess the proposal’s potential impact on their custody arrangements and consider submitting comments to the SEC on issues relevant to their businesses. Comments are due by December 7, 2026.
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