SEC Crypto Custody Proposal: Who Else Can Move Your Token?

What does the SEC crypto custody proposal ask about tokenized securities?

IN SHORT The proposal, not yet final, asks if keeping a tokenized security’s crypto asset at a permitted custodian could ever fall short of custody.

The SEC proposed it on 1 October 2026. The Federal Register, the US government’s official journal, published it on 6 October as 91 FR 63870 (file number S7-2026-35). Comments are due by 7 December 2026.

It covers how investment advisers and regulated funds may hold crypto assets for clients. These advisers, registered (or required to register) with the SEC, advise on or manage others’ money. It includes a conditional path for an adviser to hold them itself: self-custody.

IN PLAIN WORDS

Under proposed rule 223-1(d), “key materials” would be the private keys, or any part of them, needed to move a crypto asset. Self-custody would mean the adviser holding part of them, unless solely as a qualified custodian under (a)(6).

Tokenized securities are in scope. The proposed definition of crypto asset includes “digital securities”: financial instruments whose record of ownership is kept, in whole or in part, on a blockchain.

Noting that “a variety of models” are used to tokenize securities, request for comment no. 12 (91 FR 63885) asks:

“Are there any circumstances in which maintaining the associated crypto asset at a permitted custodian, or in self-custody by an adviser pursuant to the proposed adviser self-custody rule, would not be sufficient to effectively hold the tokenized security in custody under the Commission’s custody rules?” (91 FR 63885)

It’s a question in a proposed rule, not a position.

?Coming up next: So when could holding the key fall short?

IN SHORT When someone other than the key holder can change the balance, the key stops being the only way to move the position.

So the release frames custody around the private keyPrivate key A secret that signs transactions for a wallet. See the glossary. It ties custodyCustody Holding assets for a client. Under the SEC’s custody rule, it applies when an adviser can change who owns and holds those assets. See the glossary to “the ability to change a client’s ownership and possession of its assets”.

ETH, Ethereum’s own coin, works like a bearer asset in an ordinary wallet: whoever controls the key can move it. A permissioned tokenPermissioned token A token only approved wallets can receive, run by agents its owner appoints, as in ERC-3643. See the glossary isn’t a bearer asset. Its issuer’s agent roleAgent role Addresses the token lets freeze wallets, force transfers and recover tokens, without the holder’s key. Who holds it is a deployment choice. See the glossary can act on a custodian’s wallet without its key.

None of this is a bug. In the standard’s design, a register for securities has to cope with lost keys and court orders, and the ERC-3643 spec says a token “MUST be able to force transfers from an Agent wallet”.

As one of the authors of ERC-3643, which defines these agent functions, I won’t give you the legal answer. The features that make the token workable as a register also make the key one control among several.

ITEM GET

Not the only way in

An ERC-3643 agent can freeze or force-move a position without the holder’s key. Whether that changes who has custody is for the SEC and counsel.