SEC Proposes Updated Crypto Custody Rules for Investment Advisers

SEC Proposes Modernized Crypto Custody Rules

The proposed rules and rule amendments aim to address how investment managers hold client crypto assets in compliance with federal standards. According to the SEC, investment advisers and funds have raised questions about executing compliant crypto custody under legacy commission requirements. The upcoming rulemaking seeks to clarify the regulatory framework for digital asset custody while removing regulatory burdens from outdated provisions that no longer serve investor protection goals, given the evolution of market security trading and holding practices. Full details of the proposal remain shielded from the public until the Office of Management and Budget completes its review, as reported by Bloomberg News on August 26. Once the package returns to the commission, the all-Republican agency must vote to release the text for public comment. The SEC typically accepts at least 60 days of public feedback before reviewing submissions and weaving input into a final version of the rule, which will require another affirmative commission vote before taking effect.

Market Context and Legislative Stagnation in Congress

This regulatory push arrives as broader market structure legislation remains stalled in the United States Senate. PYMNTS reported that the Clarity Act, which passed the House of Representatives more than a year ago, has faced legislative gridlock amid bipartisan concerns regarding President Donald Trump and his family’s extensive cryptocurrency business dealings. Despite the congressional stalemate, crypto sector executives have grown more optimistic about potential passage this year following high-level meetings with administration officials. The SEC proposal mirrors broader federal momentum to align agency policies with the administration’s crypto agenda. In tandem with the SEC’s actions, alternative federal financial regulators are preparing independent measures if legislative remedies fail to materialize. Michael Selig, chairman of the Commodity Futures Trading Commission, announced that his agency would use its existing authority to begin establishing a supervisory regime for crypto assets if congressional action continues to stagnate. To achieve this, I’ve directed the CFTC staff to begin exploring rules to codify a CFTC market structure for crypto assets using the agency’s existing authorities. Michael Selig, CFTC Chairman The parallel actions by the SEC and the CFTC highlight a regulatory pivot toward establishing clear compliance pathways for digital asset custody, even as lawmakers debate federal statutory definitions on Capitol Hill. Market participants await the formal release of the text from the Office of Management and Budget to gauge how the updated framework will reshape institutional crypto safeguarding practices.