SEC moves crypto custody rule forward with White House review

The U.S. Securities and Exchange Commission has sent a proposed overhaul of crypto custody rules for investment advisers and investment companies to the White House for review.

The White House Office of Management and Budget received the proposal on Aug. 25, placing the planned rule changes under executive review before the SEC can release the full text and seek a commission vote.

The proposal would clarify how investment advisers and investment companies can hold crypto assets for clients while complying with existing SEC custody requirements. The agency said firms have raised questions about how digital assets can be held under rules written before crypto became part of regulated investment products and advisory portfolios.

Alongside the provisions covering digital assets, the SEC is considering removing some existing custody requirements it considers outdated because of changes in financial markets and current trading and asset-holding practices.

Full details of the proposal will remain unavailable until the Office of Management and Budget completes its review. Once the proposal is returned to the SEC, potentially with revisions, the commission’s three current Republican members would vote on whether to publish it for public comment.

SEC crypto custody rule would modernize existing requirements

The proposed amendments would apply to rules under both the Investment Advisers Act of 1940 and the Investment Company Act of 1940, according to the SEC’s regulatory agenda.

Under the existing investment adviser custody framework, registered advisers with custody of client funds or securities generally must keep the assets with a qualified custodian unless an exception applies. Crypto has raised additional questions over how those requirements work when ownership and control can depend on private keys and blockchain-based custody systems.

The SEC said its planned rule would clarify the custody framework for crypto assets while making other changes to regulations covering advisory client and fund assets. Some existing requirements could also be eliminated where the agency determines that changes in markets and current asset-holding practices have made them unnecessary.

The commission has already considered a different approach to the issue. In June 2025, crypto.news reported that the SEC had withdrawn its safeguarding proposal introduced during former Chair Gary Gensler’s tenure.

First proposed in March 2023, the Safeguarding Advisory Client Assets rule would have expanded custody requirements for registered investment advisers to cover a larger range of client assets, including cryptocurrencies. It would also have required those assets to be maintained with qualified custodians in most circumstances.

Crypto custody providers faced uncertainty under the plan because many did not meet the proposed definition of a qualified custodian. Industry participants had warned that the requirements could leave investment advisers with fewer options for holding digital assets on behalf of clients.

When the SEC withdrew the safeguarding proposal and several other unfinished Biden-era rules in June 2025, the agency said any future regulatory action in the affected areas would require a new proposal.

The custody amendments now moving through the White House review process constitute a separate rulemaking effort under Chair Paul Atkins. Specific requirements covering qualified custodians, custody arrangements and the treatment of crypto assets will not be known until the SEC publishes the proposal.

Atkins has put crypto rules on the SEC agenda

Custody is one of several digital asset issues the SEC has moved into formal rulemaking under Atkins.

In July, the commission placed three crypto rule proposals on its 2026 regulatory agenda, covering crypto assets, broker-dealers and market structure.

One proposal would consider exemptions and safe harbors for crypto assets, while another would examine how broker-dealer rules should apply to companies dealing with digital assets. A separate market structure proposal covers the trading of crypto assets through alternative trading systems and national securities exchanges.

The agenda placed the projects within a regulatory program running alongside congressional work on digital asset legislation. Atkins has said the SEC can address issues falling within its existing statutory powers while lawmakers work on legislation covering areas that require congressional action.

Crypto also received a dedicated place in the SEC’s 2026 to 2030 strategy released in June. The draft plan identified digital assets, blockchain infrastructure and tokenized financial products among areas the agency intends to address under its regulatory mandate.

The plan also called for clearer treatment of digital assets under federal securities laws and continued coordination between the SEC and Commodity Futures Trading Commission. Congress has separately been considering legislation that would formally divide responsibilities between the two regulators.

Regulatory work has already moved beyond planning in some areas. The SEC has issued guidance and pursued proposed rules covering crypto asset classifications and transactions while considering additional rules governing issuance, custody and trading.

Custody proposal moves forward as Congress debates market structure

The custody proposal reached the White House while the Senate continues work on the Digital Asset Market Clarity Act, legislation designed to establish a statutory structure for U.S. crypto markets.

The House passed its version of the CLARITY Act in 2025, while Senate lawmakers have spent 2026 negotiating their approach to issues including the division of authority between the SEC and CFTC.

Atkins has said the SEC does not need to stop all crypto rulemaking while the legislation remains unresolved. In July, the chairman said the commission was prepared to use its existing powers if Congress failed to finish the market structure bill.

As Atkins discussed the CLARITY Act, he said the SEC was “ready, willing and able” to act in areas under its authority while maintaining that legislation would provide a more durable framework for issues requiring action from Congress.

Certain parts of crypto regulation cannot be settled by the SEC alone. Giving the CFTC authority over digital commodity spot markets, for example, requires legislation because the SEC cannot grant another federal regulator jurisdiction through its own rules.

Rules covering registered investment advisers and investment companies fall directly within the SEC’s existing responsibilities. The custody proposal can therefore move through the agency’s rulemaking process separately from congressional negotiations over market structure legislation.

White House review comes before public comment

The Office of Management and Budget must complete its review before the custody proposal can return to the SEC for the next stage of the process.

Once returned, commissioners would vote on whether to issue the proposal. The SEC currently has three Republican commissioners, and approval would make the full text available to the public for the first time.

A proposed rule would then normally remain open for public comment for at least 60 days, allowing investment advisers, investment companies, custodians, crypto firms and other interested parties to submit responses.

SEC staff would review those comments and could change parts of the proposal before preparing a final version. Any completed rule would then have to return to the commission for another vote before it could take effect.

The process follows the commission’s decision to discard several unfinished crypto-related proposals inherited from the previous administration and restart rulemaking where it wants to pursue new requirements.

Among the measures withdrawn in 2025 was an attempt to expand the definition of securities exchanges, alongside the safeguarding proposal covering investment advisers. The SEC said at the time that new regulatory action in the abandoned areas would begin through fresh proposals instead of continuing the earlier proceedings.

The custody proposal is classified as economically significant on the federal regulatory agenda. The SEC said it would evaluate the expected costs, benefits, and other economic effects while developing the rule, with its provisions set to address both advisory client assets and assets held by investment companies.