- The SEC has transmitted a proposed rule to the White House’s Office of Management and Budget that would clarify the custody framework for crypto assets held by investment advisers and investment companies on behalf of their clients — a long-awaited regulatory development that addresses the legal ambiguity that has prevented many registered advisers from offering direct crypto exposure without risking violations of existing custody rules.
- The proposal would also eliminate certain existing custody requirements that the SEC says have been rendered “outdated” by market evolution and current trading and holding practices — a signal that the Atkins-led SEC is prepared to actively remove regulatory friction from the crypto market rather than simply clarifying existing rules, consistent with the Trump administration’s broader pro-crypto posture.
- The move comes as crypto market structure legislation — which would more comprehensively delineate regulatory jurisdiction between the SEC and CFTC over digital assets — remains stalled in the Senate, meaning the SEC is advancing its crypto agenda through rulemaking rather than waiting for Congress to provide a definitive statutory framework.
- The rulemaking timeline is extended: OMB must complete its review (potentially with edits) before the SEC’s three Republican commissioners vote to release the proposal publicly, after which a standard 60-day public comment period begins before the agency can finalize the rule — meaning the earliest any change takes effect is likely late 2027 or 2028, making the announcement significant as a signal of regulatory intent rather than an immediate change in the compliance landscape.
What Happened?
The SEC sent a proposed rule on crypto asset custody to the White House’s Office of Management and Budget on August 25, according to the federal regulatory agenda. The proposal would clarify how investment advisers and investment companies can hold digital assets for their clients without running afoul of existing agency rules, and would eliminate some custody requirements the SEC deems outdated. SEC Chairman Paul Atkins has framed the effort as part of his agenda to modernize the agency’s regulatory framework for digital assets. Full details of the proposal will not be public until OMB completes its review, sends it back to the SEC, and the commission votes to release it — a process that could take several months.
Why It Matters?
Custody has been the most practically significant regulatory barrier to institutional crypto adoption. Under current SEC rules, registered investment advisers face significant legal uncertainty about whether crypto assets held at qualified custodians satisfy their obligations under the Investment Advisers Act — uncertainty that has caused many advisers to avoid direct crypto exposure for client accounts or to rely on workarounds that add cost and complexity. A clear SEC framework for crypto custody removes that legal ambiguity for a class of market participants — registered investment advisers — who collectively manage trillions of dollars in assets and whose participation in crypto markets at scale would represent a material demand expansion for the asset class. The elimination of “outdated” requirements is separately notable: it suggests the Atkins SEC is not merely tolerating crypto but actively redesigning the regulatory environment to accommodate it.
What’s Next?
Watch for the OMB review completion, which will give the market its first look at the specific proposal text. The 60-day public comment period that follows will be important: crypto industry groups, traditional financial institutions, and consumer advocates will all file comments that will shape the final rule. The parallel legislative track — crypto market structure legislation in the Senate — remains the bigger prize: a statutory framework would provide more durable and comprehensive regulatory certainty than an SEC rule, which can be revised by a future administration. But in the absence of congressional action, the SEC’s custody rulemaking is the most consequential near-term regulatory development for institutional crypto participation.
Source: Bloomberg
