On October 1, 2026, the SEC proposed new rules and amendments intended to provide a tailored framework for the custody of crypto assets by registered investment advisers (RIAs) and regulated funds, including registered investment companies (RICs) and business development companies (BDCs). Although the proposal has been described as a potentially significant development for the digital asset industry, the most meaningful provisions appear to be much narrower than the headlines suggest.
For many RIAs and private funds, the proposal is important for three reasons. It would:
The central feature of the proposal is not a broad endorsement of adviser or fund self-custody. Instead, the proposal would permit self-custody only under specific and demanding circumstances. In general terms, a fund or adviser would need to determine that no permitted custodian is available for the particular crypto asset and would need to continue reassessing that determination over time.
The proposal reportedly would require a written determination that no authorized custodian is available, a periodic reassessment of that determination, documented safeguarding expertise, joint authorization controls over transactions and an independent auditor report on internal controls over the custody arrangement. For registered funds, the board also would be expected to oversee the arrangement.
That means the proposed self-custody pathway is likely to be a last resort rather than a practical default. Many advisers may conclude the operational burden, control environment, documentation, board oversight and audit support required to self-custody outweigh the benefits, particularly where a third-party custodian is available or likely to become available.
While the proposal may sound industry-changing, its practical effect may be more limited. Self-custody would require a fund or adviser to support the conclusion that no other permitted custody option exists for the specific asset. That is a high bar, particularly as the market for digital asset custodians continues to develop.
In addition, advisers and fund boards would need to be prepared to document and monitor a robust custody control environment, including controls over private key access, authorization, segregation of duties, cybersecurity, recovery procedures and transaction approvals. The requirement to obtain an internal control report could make self-custody operationally and economically impractical for many fund complexes, unless the asset is strategically important and custody alternatives truly are unavailable.
Accordingly, the proposal should not be read as a broad green light for funds to bring crypto custody in-house. It is better understood as a narrow exception designed for situations where the existing custody market cannot support a particular crypto asset, and the adviser or fund can demonstrate that it has the infrastructure, controls and oversight necessary to safeguard that asset.
One of the most significant proposed changes for private funds is not about crypto custody itself. The proposal would reportedly eliminate the requirement that an accounting firm performing certain custody rule audit and examination engagements be registered with, and subject to regular inspection by, the PCAOB, while retaining the requirement that the accountant be independent.
This would be a meaningful change for private funds relying on the audited financial statement exception. The current rule has required the annual audit to be performed by an independent public accountant registered with, and subject to regular inspection by, the PCAOB. The proposal appears to recognize that PCAOB inspection is focused on public company audit work and does not necessarily reach engagements required solely by the custody rule.
For advisers and private fund managers, this could expand the population of audit firms eligible to support the audit provision exception and potentially reduce cost or capacity constraints. At the same time, advisers would still need to evaluate auditor independence, quality, experience with private fund audits, and ability to address complex digital asset valuation, existence and control considerations.
A number of other proposed changes appear to be related to modernization or cleanup provisions rather than entirely new regulatory concepts. For example, the proposal would address state trust companies as custodians for crypto assets, an area where market participants have already been operating with reference to prior staff guidance and no-action positions.
These provisions are still important because codification can reduce reliance on informal staff positions and provide a more durable regulatory framework. However, from a practical perspective, some of these changes may formalize structures and interpretations that advisers and funds have already been evaluating or using under existing guidance.
Although the proposal is not final, advisers and fund managers with digital asset exposure should evaluate the provisions through a practical lens rather than assuming the proposal will make self-custody broadly available:
>> Our Take: This proposal is meaningful, but not necessarily because it opens the door to widespread self-custody. The more realistic takeaway is that the SEC is proposing a narrow, control-heavy pathway for registered funds and advisers to self-custody certain crypto assets when no other permitted custody option is available.
For many advisers, that pathway may prove difficult to use and may not be worth the effort unless the asset is central to the strategy and custody alternatives truly are unavailable. For private fund managers, the proposed change to the PCAOB auditor eligibility requirement may be the more immediately significant development, while the cleanup provisions may provide helpful certainty by moving existing staff positions into the rule text.
Affected funds and advisers should follow the rulemaking closely, but approach the proposal as a targeted custody framework — not a broad relaxation of custody expectations.
Contact Keith Stafford, Christopher Weirich or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.