proposal

The U.S. Securities and Exchange Commission (SEC) has taken another step toward rewriting how investment advisers and funds can hold clients’ crypto assets, sending a new custody proposal to the White House for regulatory review.

The proposal, titled “Amendments to the Custody Rules” was submitted to the Office of Information and Regulatory Affairs (OIRA), part of the Office of Management and Budget (OMB), on August 25. The filing remains confidential, meaning the market does not yet know the precise changes the SEC is considering.

Still, the filing offers some clues about where the agency is heading.

The SEC’s regulatory agenda says the proposal would modernize custody requirements under the Investment Advisers Act of 1940 and Investment Company Act of 1940, including rules governing crypto assets. It also aims to address questions from investment advisers and investment companies about how digital assets can be held while complying with existing custody requirements.

Importantly, the proposal is classified as “Deregulatory” under Executive Order 14192. That does not reveal the substance of the coming rule, but it strongly suggests the SEC is looking to reduce regulatory burdens rather than impose another layer of restrictions. The agency also describes outdated provisions as candidates for removal where they are no longer necessary to protect investors given changes in markets and asset-holding practices.

The SEC’s current timetable targets October 2026 for publication of a proposed rule. That would begin a public comment period before the agency could consider a final version. The timing, however, is not guaranteed. The proposal is currently pending OMB review, and the SEC has previously missed regulatory deadlines by months.

The SEC has sent proposed crypto custody rule changes to the White House for review

A second attempt after the Gensler era

The new effort marks a sharp change from the SEC’s approach under former Chairman Gary Gensler.

In 2023, the agency proposed expanding its custody requirements through what became known as the Safeguarding Rule. The proposal would have required investment advisers to keep client assets, including crypto, with qualified custodians meeting specific regulatory standards.

For traditional securities, that framework was relatively straightforward. Qualified custodians generally included banks and trust companies, registered broker-dealers and certain futures commission merchants.

Crypto created a much more difficult problem.

Many digital-asset platforms did not fit neatly into the existing definition of a qualified custodian, leaving advisers uncertain about how they could offer crypto exposure while remaining compliant. Gensler argued at the time that advisers could not simply assume crypto platforms qualified because of the way many of those businesses operated.

The proposal drew heavy criticism from both the financial and crypto industries. Opponents warned that the requirements could make crypto custody too expensive or impractical, particularly for smaller investment advisers. The Small Business Administration also raised concerns about the potential impact on small businesses.

The SEC ultimately withdrew the Safeguarding Rule in June 2025 after it failed to reach final approval during Gensler’s tenure.

The regulatory landscape has changed considerably since then.

Crypto custody infrastructure has expanded

One of the biggest differences is the growing number of financial institutions seeking permission to provide digital-asset custody services.

Crypto companies and financial firms have increasingly pursued bank and trust charters, giving the industry a broader pool of institutions capable of handling digital assets within the U.S. financial system. That development could give the SEC more flexibility as it considers how custody rules should apply to crypto.

The agency has also taken smaller steps to address the issue.

In September 2025, the SEC issued a no-action letter allowing certain state-chartered trust companies to serve as qualified custodians for digital assets under specified conditions. Those conditions included due diligence, independent audits, internal controls, asset segregation and restrictions on rehypothecation.

More recently, the SEC used another no-action approach to address custody arrangements involving Franklin Templeton’s OnChain Fund, showing that regulators are already experimenting with ways to accommodate digital assets within existing frameworks.

The new proposal could take those developments further by establishing broader rules rather than relying on individual regulatory relief.

Another piece of Atkins’ crypto agenda

The custody initiative is part of a much larger shift under SEC Chairman Paul Atkins, who has made clearer and more accommodating crypto regulation a central priority.

The agency has been working on rules covering token offerings, crypto market structure, broker-dealer activities and tokenized securities. In March, the SEC also issued an interpretation clarifying how federal securities laws apply to certain crypto assets and transactions, describing the move as part of its effort to provide greater regulatory certainty.

The custody proposal is particularly important because custody sits at the foundation of institutional crypto adoption. Asset managers may be willing to offer digital-asset products, but they still need a compliant way to safeguard those assets, manage private keys and demonstrate control to regulators and clients.

For now, the most important detail is what the SEC has not revealed.

The draft remains behind closed doors at OIRA, where it could be reviewed or revised before returning to the SEC. If the agency follows its current schedule, the market could get its first detailed look at the new framework in October.

After the failed 2023 approach, the next proposal will show whether the SEC has found a workable middle ground between investor protection and the practical realities of institutional crypto custody.