SEC advances cryptocurrency custody rules, White House launches review

The U.S. Securities and Exchange Commission has submitted to the White House for review a major revision of the crypto asset custody rules for investment advisers and investment companies.

Summary

The U.S. Securities and Exchange Commission submitted its proposed crypto asset custody rules to the White House Office of Management and Budget on August 25. The proposal aims to clarify how investment advisers and investment companies can hold crypto assets on behalf of clients. The U.S. Securities and Exchange Commission may abolish some existing custody requirements that it believes are outdated in current market practice. The complete proposal will be made public after review by the White House and vote by the Securities and Exchange Commission.

The White House Office of Management and Budget received the proposal on August 25, making the proposed rule changes subject to administrative review before the Securities and Exchange Commission can release the full text and seek a committee vote.

The proposal would clarify how investment advisers and investment companies can hold crypto assets on behalf of clients while complying with existing custody requirements from the U.S. Securities and Exchange Commission. The agency said rules were in place before crypto assets became part of regulated investment products and advisory portfolios, and companies have raised questions about how to hold digital assets under these rules.

In addition to provisions covering digital assets, the U.S. Securities and Exchange Commission is considering abolishing some existing custody requirements that it believes are outdated, citing changes in financial markets and current trading and asset holding practices.

Full details of the proposal will not be made public until the Office of Management and Budget completes its review. Once the proposal, with possible revisions, is returned to the Securities and Exchange Commission, the committee's three current Republican members will vote on whether to release the proposal for public comment.

Securities and Exchange Commission crypto asset custody rules aim to modernize existing requirements

In accordance with the Securities and Exchange Commission's regulatory agenda, the proposed amendments will apply to rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940.

Under the existing investment adviser custody framework, unless exceptions apply, registered advisers with custody rights over client funds or securities must usually place those assets in the custody of a qualified custodian. While ownership and control may depend on private keys and blockchain-based custody systems, crypto assets raise additional questions about how these requirements work.

The U.S. Securities and Exchange Commission said its planned rules will clarify the custody framework for crypto assets, while also amending other regulatory provisions involving consulting clients and fund assets. If the agency determines that market changes and current asset holding practices have made certain existing requirements unnecessary, they may also be repealed.

The committee has previously considered different ways to deal with this issue. According to a report in June 2025, the U.S. Securities and Exchange Commission withdrew a protection proposal made during the tenure of former Chairman Gary Gensler.

The proposal, originally proposed in March 2023, aims to expand the scope of custody requirements for registered investment advisers to a wider range of client assets, including cryptocurrencies. It will also require that in most cases, these assets be held by a qualified custodian.

Under this plan, crypto asset custody service providers face uncertainty as many providers do not meet the proposed definition of a qualified custodian. Industry participants have warned that these requirements could lead to fewer options for investment advisers to hold digital assets on behalf of clients.

When the U.S. Securities and Exchange Commission withdrew the protection proposal and several other unfinished Biden era rules in June 2025, the agency said it needed to reintroduce new proposals before taking any future regulatory action in the affected areas.

The revision of the trusteeship rules, currently being advanced during the White House review process, is an independent rulemaking exercise led by Chairman Paul Atkins. Specific requirements for qualified custodians, custody arrangements and processing of crypto assets will not be known until the U.S. Securities and Exchange Commission issues a proposal.

Atkins has placed crypto rules on the agenda of the U.S. Securities and Exchange Commission

Custody is one of the digital asset issues that the U.S. Securities and Exchange Commission has entered the formal rule-making stage under Atkins 'leadership.

In July, the committee included three proposals for crypto rules on its 2026 regulatory agenda, covering crypto assets, broker-dealers, and market structures.

One proposal would consider exemptions and safe harbor provisions for crypto assets; another would examine how broker-dealer rules should apply to companies trading digital assets; and a separate market structure proposal would cover trading in crypto assets through alternative trading systems and national stock exchanges.

The agenda includes these items in a regulatory plan that runs parallel to congressional digital asset legislation. Atkins said that as lawmakers deal with legislation in areas that require congressional action, the Securities and Exchange Commission can deal with issues within its existing statutory powers.

Crypto assets have also gained a dedicated place in the 2026 - 2030 strategy released by the U.S. Securities and Exchange Commission in June. The draft plans to list digital assets, blockchain infrastructure and tokenized financial products as areas the agency intends to deal with under its regulatory authority.

The plan also calls for a clearer definition of digital assets under federal securities laws and enhanced ongoing coordination between the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. Congress has also been separately considering legislation to formally divide responsibilities between the two regulators.

In some areas, regulatory efforts have gone beyond the planning stage. While considering additional rules for issuance, custody and trading, the U.S. Securities and Exchange Commission has issued guidance on the classification and trading of crypto assets and has advanced proposed rules.

Custody proposal moves forward as Congress discusses market structure

The trusteeship proposal comes as the Senate continues to advance work on the Digital Asset Markets Clarity Act, which aims to establish a legal structure for the U.S. crypto market.

The House passed its version of the Clarification Act in 2025, while Senate lawmakers are negotiating in 2026 on issues including the division of powers between the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Atkins said that the U.S. Securities and Exchange Commission does not need to stop the formulation of all crypto rules while the legislation is not yet resolved. In July, the chairman said the committee was prepared to use its existing powers to act if Congress failed to complete the market structure bill.

During the discussion of the Clarification Act, Atkins said the Securities and Exchange Commission was "ready, willing and able" to take action within its authority, while insisting that legislation would provide a more lasting framework for issues that require congressional action.

Certain aspects of crypto regulation cannot be resolved by the U.S. Securities and Exchange Commission alone. For example, granting the Commodity Futures Trading Commission regulatory authority over the digital commodity spot market requires legislation because the U.S. Securities and Exchange Commission cannot grant jurisdiction to another federal regulatory agency through its own rules.

Rules involving registered investment advisers and investment companies fall directly within the existing scope of responsibility of the U.S. Securities and Exchange Commission. As a result, trusteeship proposals can be advanced through the agency's rule-making process independent of congressional negotiations on market structure legislation.

The White House review precedes public comment

The Office of Management and Budget must complete its review before the custody proposal is returned to the Securities and Exchange Commission for the next stage of the process.

After the proposal is returned, members will vote on whether to publish it. The U.S. Securities and Exchange Commission currently has three Republican members, and if the proposal is approved, its full text will be made public for the first time.

A proposed rule will typically then open a public comment period of at least 60 days, allowing investment advisers, investment companies, custodians, crypto companies and other interested parties to submit feedback.

Securities and Exchange Commission staff will review these comments and may revise parts of the proposal before preparing the final version. Any completed rules will need to be submitted to the committee again for a vote before they can take effect.

This process follows the committee's decision to abandon multiple unfinished cryptography-related proposals left over from previous administrations and restart rule making in areas where it hopes to create new requirements.

Among the measures withdrawn in 2025 were a plan to attempt to expand the definition of securities trading and protection proposals involving investment advisers. The Securities and Exchange Commission said at the time that initiating new regulatory action in abandoned areas would begin by submitting new proposals rather than continuing previous procedures.

The trusteeship proposal is classified as an economically important rule on the federal regulatory agenda. The Securities and Exchange Commission said it will assess expected costs, benefits and other economic impacts while developing the rules, and its terms will cover both consulting client assets and assets held by investment companies.