SEC Revives Crypto Custody Rules With a Different Regulatory Approach

The U.S. Securities and Exchange Commission (SEC) is reopening one of its most contentious crypto policy debates: how investment advisers should safeguard clients' digital assets.

The agency has taken an early step toward a new custody proposal by sending the regulatory concept to the White House Office of Management and Budget (OMB) for review. The move does not yet constitute a formal rule proposal, but it puts crypto custody back on the SEC's regulatory agenda after its previous effort collapsed under heavy industry opposition.

This time, however, the policy is emerging under SEC Chairman Paul Atkins, whose tenure has focused on establishing a more workable regulatory framework for digital assets in the United States.

The SEC's regulatory agenda says the forthcoming proposal would "improve and modernize" custody requirements for investment adviser and fund assets, including crypto assets. It would also seek to remove provisions the agency considers outdated as financial markets and asset-holding practices have evolved.

That language leaves the eventual framework largely undefined. But compared with the SEC's previous approach, the direction appears less focused on restricting crypto firms and more on determining how digital assets can fit within existing investor-protection rules.

The SEC's Previous Custody Push Collapsed

The issue became particularly controversial in 2023, when the SEC under former Chairman Gary Gensler proposed expanding its custody rule to cover crypto assets.

Gensler argued that crypto platforms generally could not be relied upon as qualified custodians. Under the proposal, investment advisers would have had to place client crypto assets with a limited group of qualified custodians, generally including banks and trust companies, SEC-registered broker-dealers and certain futures commission merchants.

The proposal drew opposition well beyond the crypto industry.

Financial firms argued that the restrictions could make it difficult for advisers to offer digital assets to clients, while lawyers at the Small Business Administration warned that the SEC had underestimated the potential impact on smaller investment advisers.

Crypto investment firm a16z described the proposal as "illegal, infeasible, and dangerous," while other financial institutions and regulators also challenged aspects of the SEC's approach.

The agency never finalized the rule before Gensler left the SEC. The commission subsequently withdrew the proposal in 2025.

The Market Has Changed Since 2023

The SEC is now approaching the issue from a significantly different regulatory environment.

Under Atkins, crypto has become a central part of the agency's rulemaking agenda rather than primarily an enforcement question. The industry has also expanded the pool of institutions capable of providing regulated digital-asset custody, including through a wave of new federal trust bank charters.

That development could address one of the practical concerns underlying the previous proposal: the limited number of traditional institutions prepared to safeguard crypto assets at scale.

The SEC's latest custody initiative is also arriving alongside a broader effort to establish rules for digital assets.

The agency recently proposed its first major crypto-specific rule under its new regulatory agenda, while separate work is underway on securities tokenization and rules governing crypto activities by broker-dealers.

Taken together, the initiatives suggest the SEC is attempting to build a broader regulatory framework around digital assets rather than treating custody as an isolated issue.

The Key Question Is What Counts as a Qualified Custodian

The new proposal could therefore have consequences well beyond custody procedures.

The central question will be whether the SEC creates a framework that gives investment advisers practical access to qualified crypto custodians while maintaining protections around client assets.

That could determine which banks, trust companies, broker-dealers and crypto-native institutions are ultimately able to serve the market—and whether advisers can expand their digital-asset offerings without facing the constraints that helped derail the previous proposal.

The SEC's regulatory agenda points to October as a potential timeframe for the proposal. That date should be treated cautiously, however. The agency's regulatory timelines are estimates, and previous initiatives have been delayed substantially.

The custody proposal itself is still only at the preliminary stage.

But its return to the SEC's agenda is significant. After the failure of the Gensler-era approach, the agency now has an opportunity to answer the industry's custody questions without reproducing the same regulatory constraints.

For the crypto industry, the test will be whether the SEC's second attempt provides a workable path for safeguarding digital assets rather than simply narrowing where they can be held.