TLDR
- The SEC is preparing a new crypto custody rule for investment advisers and fund assets.
- The proposal has been sent to the White House Office of Management and Budget for review.
- The SEC wants to modernize custody requirements and clarify how firms should safeguard client crypto assets.
- The effort follows the agency’s failed 2023 custody proposal under former Chair Gary Gensler.
- SEC Chair Paul Atkins has taken a more crypto-friendly regulatory approach since taking office.
The U.S. Securities and Exchange Commission is preparing another attempt to update rules for firms holding client assets. The planned crypto custody rule aims to explain how advisers and funds can safeguard digital assets under existing custody requirements.
The SEC has sent the concept to the White House Office of Management and Budget for review. The agency says the proposal would modernize custody rules, address crypto assets, and remove older requirements that no longer fit current trading practices.
SEC Returns to Crypto Custody Rule
The new effort follows a failed 2023 proposal under former SEC Chair Gary Gensler. That plan sought to limit advisers to qualified custodians, including chartered banks, trust companies, registered broker-dealers, and regulated futures firms.
The proposal drew objections from financial companies, crypto firms, and officials. Small Business Administration lawyers warned that compliance costs could threaten smaller advisers. Andreessen Horowitz argued that the plan created legal and practical problems. The SEC later withdrew the proposal.
Current SEC Chair Paul Atkins has made clearer crypto rules part of the agency’s agenda. His approach has focused on giving market participants routes for issuing, trading, and holding digital assets in the United States.
The market has changed since 2023. More crypto companies have secured federal trust bank charters, expanding the number of institutions that may qualify to safeguard digital assets. That shift could give advisers more custody choices under a new framework.
SEC Expands Its Crypto Rulemaking
The custody plan forms part of an SEC effort to update crypto regulation. The agency recently proposed its Regulation Crypto Assets rule, which creates a tailored framework for certain crypto offerings and related market activity.
The SEC plans to address crypto compliance for broker-dealers. Atkins has discussed clearer rules for tokenized securities as more financial firms test blockchain-based products and settlement systems.
The SEC’s regulatory agenda points to October for a possible crypto custody rule proposal. However, agency schedules often change as staff reviews proposals, gathers feedback, and works through approval steps.
Investment advisers may need to wait for the proposal before knowing final custody standards. The next release should provide details on eligible custodians, compliance duties, client protection, and how the SEC plans to treat crypto under updated custody rules.
