SEC Moves to Rewrite Crypto Custody Rules for Advisers and Funds
The U.S. Securities and Exchange Commission has moved its planned overhaul of crypto custody rules into White House review, advancing an initiative that could reshape how investment advisers and regulated funds safeguard digital assets.
Summary:
- The SEC has advanced a proposal addressing crypto custody by investment advisers and investment companies.
- The plan would clarify how existing custody requirements apply to digital assets.
- Regulators also intend to remove requirements they consider outdated for modern markets.
- The proposal still faces White House review, an SEC vote and public consultation before becoming a rule.
According to Bloomberg, the SEC submitted the proposal to the Office of Management and Budget on August 25, with the agency seeking both clearer crypto-specific treatment and the removal of custody requirements it considers outdated as markets and asset-holding practices have evolved.
The SEC Is Reopening a Rulebook Built Before Crypto Custody
Custody has become one of the harder areas to fit into existing U.S. investment regulation because the rules governing advisers were largely designed around assets held through traditional banks, broker-dealers and other conventional financial intermediaries.
Crypto introduces a different operational model.
Control over a private key can determine control over an asset, while custodians can use structures ranging from segregated wallets to omnibus addresses and multi-party key-management systems. Assets may also move continuously rather than through securities settlement systems operating around established market hours.
The SEC’s latest proposal is intended to address that mismatch.
According to Bloomberg, the agency wants to clarify custody requirements for crypto assets held by investment advisers and investment companies, while eliminating provisions that have become “outdated” because of changes in markets and current trading and holding practices.
The exact changes are not yet public. The proposal first has to complete review by the White House Office of Management and Budget.
That distinction matters. The SEC has not yet proposed a public rule investors or companies can evaluate clause by clause, and the submission does not mean a new custody regime has already been adopted.
Why This Could Be More Important Than Another Crypto Exemption
The strategic significance lies in who the rules would affect.
Investment advisers sit between large pools of client capital and the institutions that actually hold those assets. A clearer custody framework could therefore influence which banks, trust companies and specialized crypto custodians can compete for institutional assets.
That makes custody rules a potential bottleneck for broader adoption.
An asset manager can decide that Bitcoin or another crypto asset belongs in a portfolio, but that investment still requires an operational and legally acceptable answer to a basic question: who can hold it?
If the number of eligible custody providers is narrow or the requirements are difficult to reconcile with blockchain infrastructure, institutional access remains constrained regardless of investor demand.
A modernization that gives advisers clearer standards could lower that uncertainty without removing the safeguards surrounding client assets.
The crucial issue will therefore be whether the SEC changes only technical requirements or meaningfully broadens the custody models institutions can use.
The New Proposal Follows a Very Different 2023 Approach
The direction also deserves comparison with the SEC’s previous attempt to rewrite adviser custody requirements.
Under former Chair Gary Gensler, the Commission proposed its Safeguarding Advisory Client Assets rule in February 2023. That proposal would have expanded the existing custody framework beyond funds and securities to cover essentially all client assets, explicitly including crypto.
The proposal generated substantial industry resistance, particularly around whether crypto trading platforms and specialized custodians could satisfy its qualified-custodian requirements.
That rule was never finalized.
Since then, the regulatory environment has changed considerably. SEC staff granted no-action relief in September 2025 allowing registered investment advisers and regulated funds, subject to specified conditions, to treat certain state trust companies providing crypto custody services as banks for custody purposes.
The relief requires due diligence, including a reasonable basis for believing that the state trust company is authorized to provide crypto custody, as well as disclosure of material custody risks.
That approach provides an important clue to the policy problem the SEC is now trying to solve: preserving safeguards around client assets without forcing crypto custody into an institutional structure that does not always reflect how digital assets are actually controlled.
Crypto Custody Is Becoming a Competition Between Financial Institutions
The eventual wording could have commercial consequences well beyond compliance departments.
Banks, state-chartered trust companies, broker-dealers and crypto-native custodians are increasingly competing for the same institutional digital-asset business.
The SEC’s current framework already permits regulated funds and registered advisers to maintain crypto with several categories of permissible custodians. The agency’s 2025 relief expanded practical options involving state trust companies, while separate SEC work has addressed how broker-dealers can maintain possession or control of crypto asset securities.
READ MORE: CFTC Proposes Scrapping Order Book Rule for Certain Swap Trades
A broader modernization could change the competitive balance.
If more regulated institutions can satisfy custody requirements, advisers gain greater choice and may become less dependent on a small number of specialized providers. More competition could also affect custody pricing, insurance arrangements and the development of institutional services such as staking or collateral management.
A restrictive interpretation would have the opposite effect, concentrating assets among institutions capable of meeting more demanding requirements.
Until the proposal becomes public, neither outcome can be assumed.
Removing “Outdated” Requirements May Be the Bigger Story
Crypto will attract most of the attention, but the SEC’s reference to removing outdated custody provisions suggests a broader modernization effort.
Markets have changed substantially since many existing custody requirements were developed. Securities increasingly trade electronically, asset ownership is recorded across new forms of infrastructure, and tokenization is beginning to blur the distinction between conventional securities records and blockchain-based ownership.
The SEC itself has spent 2026 clarifying how federal securities laws apply to areas including tokenized securities and different categories of crypto assets. In March, the Commission published a broader interpretation addressing digital commodities, stablecoins, digital securities, staking and other crypto activities.
Custody is the operational counterpart to that work.
Defining an asset is only one part of bringing it into regulated finance. Advisers also need rules governing who controls it, how client ownership is protected and what happens if a custodian fails.
The new proposal could therefore become part of a wider shift from deciding whether crypto fits securities regulation toward specifying how regulated institutions can actually handle it.
White House Review Comes Before the Details
The August 25 submission is only an intermediate regulatory step.
OMB review gives the administration an opportunity to examine the proposal before the SEC formally releases it. Once that process is complete, the Commission would still need to vote on whether to publish the proposal.
Only then would investors, advisers and custody providers see the actual regulatory language.
A public comment period would follow, typically lasting at least 60 days, according to Bloomberg’s reporting. The SEC could then revise the proposal before considering a final rule.
That sequence means the most important questions remain unanswered: which institutions will qualify to custody crypto, whether different types of digital assets receive different treatment, how advisers must demonstrate control and segregation, and precisely which legacy requirements the Commission wants to eliminate.
Those details will determine whether the overhaul primarily simplifies compliance or materially expands the infrastructure through which regulated U.S. investment capital can hold crypto.
The information presented in this article is intended for informational purposes only and should not be interpreted as financial, investment, or trading advice. Coinspress.com does not promote or advocate for any particular investment strategy, asset, or cryptocurrency project. Cryptocurrency markets are highly volatile and unpredictable – always perform your own research and seek guidance from a qualified financial professional before making any investment decisions.
Kosta Gushterov
Reporter at CoinsPress
Kosta has reported on cryptocurrency markets and blockchain infrastructure since 2020, bringing over six years of hands-on experience in the crypto industry built through daily tracking of markets, trends, and emerging blockchain developments. Specializing in Bitcoin on-chain analysis, institutional ETF flows, and digital asset price action, his work has been cited by other news agencies and consistently covers market developments with a focus on data-driven reporting across Bitcoin, Ethereum, Solana, and XRP. Over the years, Kosta has contributed to multiple crypto media outlets in different regions, authoring over 6,000 articles across the sector. His reporting spans cryptocurrency markets and the broader fintech industry, tracking not only price action but also the technological and regulatory forces shaping the ecosystem. To support his analysis, Kosta actively leverages on-chain data and metrics from leading platforms such as Santiment, Glassnode, and CryptoQuant, enabling deeper, evidence-based market insights. He believes in the power of transparency and the data that underpins the blockchain ecosystem. His academic background in Marketing Management from Denmark further complements his analytical approach, adding a strong understanding of communication strategy and content positioning to his work.
