The Securities and Exchange Commission is taking another crack at crypto custody regulations for investment advisers, sending a preliminary concept to the White House Office of Management and Budget this week for review. The move marks the SEC's first concrete step toward clarifying where advisors can park client crypto assets since a previous attempt collapsed under former Chair Gary Gensler without receiving final approval.
Market Context
The regulatory development arrives as the digital asset industry has undergone significant structural changes since the failed 2023 proposal. A surge of new federal trust bank charters has expanded the field of qualified custodians capable of handling crypto assets, giving regulators more options than existed during the previous attempt. The broader crypto market has seen institutional adoption accelerate, with traditional finance players increasingly seeking regulatory clarity before committing larger positions.
Analysis
The SEC's current description on its public regulatory agenda indicates the proposal would 'improve and modernize the regulations around custody of investment adviser client assets and fund assets, including to address crypto assets.' More notably, the agency said it aims to 'remove burdens from certain outdated provisions that are no longer needed to provide investor protection given the evolution in the markets and security trading and holding practices.'
The language suggests a marked departure from the 2023 approach. That proposal would have restricted advisors to a narrow definition of qualified custodians—generally chartered banks, registered broker-dealers, or futures commission merchants—which crypto platforms argued would effectively exclude most digital asset exchanges and custodians from serving the advisory market.
Industry reaction was fierce at the time. Venture firm a16z called that effort 'illegal, infeasible, and dangerous.' Senior lawyers at the Small Business Administration told the SEC its proposal 'drastically underestimates potential impacts' that could have forced smaller advisers out of business. The proposal ultimately stalled and was pulled last year after Gensler departed.
Current Chairman Paul Atkins has made crypto-friendly regulation a centerpiece of his tenure, with custody clarification representing just one piece of a broader deregulatory agenda that includes the recently proposed Regulation Crypto Assets—the SEC's first major crypto-specific rule—and promises to clear the path for securities tokenization.
Key Numbers
- October 2026: Target timeline suggested in the SEC regulatory agenda disclosure
- April 2026: Original target date for Reg Crypto proposal (missed)
- August 2026: Actual Reg Crypto proposal date, illustrating timing uncertainty
- 2023: Year of previous failed custody rule attempt under Gensler
What to Watch
The proposal timeline could face delays—the SEC's track record shows Reg Crypto initially appeared on the April agenda but wasn't proposed until August. Market participants should monitor for the actual text when released, particularly around qualified custodian definitions that will determine which entities can hold advisory client crypto. Broker-dealer crypto compliance rules are also expected near-term as part of the agency's broader regulatory refresh.
The White House OMB review period means the proposal could sit in limbo for weeks or months before advancing to a formal notice-and-comment phase. Industry groups and crypto platforms that objected to the 2023 approach will likely engage early, potentially shaping more accommodating definitions than Gensler's vision contemplated.