The Securities and Exchange Commission issued a proposing release on 1 October 2026 under File No. S7-2026-35, carrying Release Nos. IA-7023 and IC-36353 and RIN 3235-AN46. The action line reads Proposed rule, so nothing is yet binding. The release affects 17 CFR Parts 270, 274, 275 and 279, and the comment period runs for 60 days from publication in the Federal Register.
Under the Investment Advisers Act of 1940, rule 206(4)-2 (17 CFR 275.206(4)-2) would be amended and redesignated as proposed rule 223-1 (17 CFR 275.223-1), with rule 204-2 (17 CFR 275.204-2), Form ADV (17 CFR 279.1) and Form ADV-E (17 CFR 279.8) amended alongside it. Under the Investment Company Act of 1940, rules 17f-1, 17f-2, 17f-4, 17f-5, 17f-6, 17f-7, 31a-1 and 31a-2 would be amended, rule 17f-3 and Form N-17f-1 (17 CFR 274.219) would be rescinded, Form N-CEN (17 CFR 274.101) would be amended, and proposed rules 17f-8 (17 CFR 270.17f-8) and 17f-9 (17 CFR 270.17f-9) would be added.
Proposed rule 223-1(b)(7) treats an adviser holding any part of the private keys for a client crypto asset as self custodying that asset. An adviser taking that route would have to make a written determination, initially and quarterly, that no permitted custodian is available for the asset, document its expertise for each crypto asset held, run safeguarding systems covering private key management, joint authorisation of transactions by at least two people and a separate address for each client, review those systems and its cybersecurity controls at least annually, obtain internal control reports within six months of beginning custody and annually after, and send each client quarterly statements covering address, network, balances and transactions. State trust companies would be permitted to act as custodians for client and regulated fund crypto assets.
Self custody would also require a written agreement under applicable State law treating the crypto asset as a financial asset and the adviser as a securities intermediary, which leaves part of the analysis resting on State commercial law. For regulated funds, proposed rule 17f-9 puts the decision on the board, which must find that the asset would be subject to reasonable care if self custodied with the adviser before custody begins and annually after, and must review the adviser's qualified custodian determination before custody begins and quarterly thereafter. The release also proposes changes to adviser financial statement audit requirements and to broker-dealer custodial services for regulated funds. Comments are due 60 days after the release appears in the Federal Register.
Licentium advises investment advisers, fund boards, trust companies and digital asset custodians on United States custody obligations and the crypto asset rules now out for comment. Work we undertake includes gap analysis against proposed rule 223-1, qualified custodian and self custody determination procedures, State law financial asset and securities intermediary agreements, and comment letters on File No. S7-2026-35.