SEC Crypto Custody Rule Advances to White House Review

The U.S. Securities and Exchange Commission (SEC) has taken a significant step toward updating federal rules for how investment advisers and funds hold cryptocurrencies, sending a proposed overhaul of its crypto custody framework to the White House for review. The submission, delivered to the Office of Information and Regulatory Affairs (OIRA) on August 25, signals the SEC's intent to clarify longstanding questions about digital asset custody under existing securities laws.

Regulatory Review Process

OIRA, a division of the Office of Management and Budget, is responsible for reviewing major federal regulations before they are released for public comment or enacted. The SEC's proposal, which has not yet been made public, aims to address how investment advisers and investment companies can securely hold crypto assets for clients while remaining compliant with the Investment Advisers Act and the Investment Company Act. OIRA may request revisions before returning the proposal to the SEC, which would then decide whether to open it for public feedback.

SEC's Shift Toward Formal Rulemaking

The custody rule overhaul is part of a broader regulatory reset at the SEC since Paul Atkins became chair in 2025. Atkins has prioritized formal rulemaking over enforcement actions, a shift that has already led to the dismissal of several high-profile cases against major crypto firms, including the agency's lawsuit against Coinbase. The SEC has also issued new guidance clarifying that meme coins are not considered securities and specifying which staking activities fall outside securities law. Last week, the agency introduced "Regulation Crypto Assets," a proposed framework for capital raising and investor protection in the digital asset sector, building on joint guidance with the Commodity Futures Trading Commission released in March.

Industry Impact and Legislative Context

The SEC's proposed custody changes come as the U.S. crypto industry faces ongoing uncertainty over federal regulation. The commission has received repeated inquiries from investment advisers about how to manage digital assets for clients without violating existing rules. Separately, Chair Atkins has indicated plans for an "innovation exemption" that could provide regulatory relief for firms issuing tokenized securities on decentralized platforms, though details have not been released. The custody rulemaking is advancing as the CLARITY market structure bill remains stalled in the Senate, with a cloture vote expected after lawmakers return from recess in September. President Trump has recently urged the Senate to move forward on the bill, as detailed in EgonCoin's coverage of his push for regulatory clarity for crypto firms (Trump's call for Senate action on the CLARITY Act).

Key Dates and Market Data

The SEC's custody proposal was formally submitted to OIRA on August 25, 2026. According to the SEC's most recent public data, registered investment advisers in the U.S. collectively manage over $110 trillion in assets, with digital assets representing a growing but still relatively small portion of total client holdings. The outcome of the custody rule review could directly affect how these advisers structure crypto custody arrangements, insurance, and reporting for both retail and institutional clients.

Custody of digital assets remains a complex issue for U.S. investment firms. Unlike traditional securities, cryptocurrencies are bearer assets, meaning control over private keys equates to control over the assets themselves. This creates unique risks around theft, loss, and operational security. Regulatory clarity on custody standards could influence which custodians are eligible, what insurance or technical safeguards are required, and how advisers must report holdings to clients and regulators. As the SEC moves toward formal rulemaking, advisers and funds will need to monitor developments closely to ensure compliance and protect client assets.