The Securities and Exchange Commission has sent a proposed overhaul of crypto custody rules for investment advisers to the White House Office of Management and Budget, the final review step before the rule is published, Bloomberg reported August 26. The proposal, logged with OMB on August 25, would rewrite the requirements advisers must meet when holding digital assets on behalf of clients, a question that has kept many registered firms out of direct crypto custody since the staff accounting bulletins of the previous decade.
The custody proposal is the second major SEC crypto action in a single week. On August 18, the Commission proposed Regulation Crypto Assets, a new framework covering how crypto projects raise capital under federal securities laws, with a public comment period running through October 20. Together the two proposals sketch out how the SEC, now chaired by Paul Atkins, intends to regulate the asset class without waiting for the CLARITY Act to finish moving through Congress.
What the custody rule changes
Current adviser custody rules were written for traditional assets. For years, the SEC staff treated crypto held with certain qualified custodians as a problem, and the 2022 proposal to expand the custody rule would have effectively forced advisers to move client crypto to a narrow set of banks, a standard almost no crypto-native custodian could meet. The industry pushed back hard, the rule stalled, and advisers serving crypto clients operated in a gray zone that kept some of the largest registered investment advisers from touching digital assets at all.
The new proposal, still unpublished in detail, is expected to define what qualifies as adequate custody for digital assets, including questions about whether state-chartered trust companies can serve as qualified custodians and how self-custody or multi-signature arrangements are treated. Those details determine which firms can legally hold client crypto, and by extension how much institutional money flows into the asset class through advisory channels. OMB review under Executive Order 12866 typically covers cost-benefit analysis and interagency comment, and the proposal will still be published for public comment after it clears.
| SEC action | Date | Status |
|---|---|---|
| Regulation Crypto Assets proposal | Aug 18 | Published, comments due Oct 20 |
| Custody rule proposal to OMB | Aug 25 | White House review, pre-publication |
| CLARITY Act | Pending | Senate cloture vote scheduled Sept 15 |
Why the timing matters
The proposals land in the middle of a legislative fight. Senate Republicans released a revised CLARITY Act draft on Monday with a stablecoin circuit breaker and new ethics provisions, hours before a 60-vote cloture test scheduled for Tuesday. Polymarket briefly cut the odds of the bill clearing that vote to 12.5%, and bitcoin slipped below $76,000 as traders positioned for the outcome. Atkins himself has said legislation remains indispensable, framing the SEC’s rules as a bridge rather than a substitute for a statutory market structure framework.
The sequence matters for the industry’s planning. A statute from Congress would settle the jurisdictional split between the SEC and CFTC that the CLARITY Act addresses. The SEC’s proposals cover what the agency can do on its own: how tokens are offered, how advisers hold them, and when a token stops being treated as an investment contract. Reg Crypto Assets includes a safe harbor that would delink a crypto asset from its investment contract once an issuer has completed the managerial efforts it promised, along with two registration exemptions, one permitting offerings of up to $5 million over a four-year period and a second, broader exemption that requires financial statements and ongoing reporting.
Chairman Paul Atkins called the proposal another step in the Commission’s strategy to advance the rule book for the modern era and onshore innovation in crypto asset markets for generations to come.
The proposal would also preempt state securities law registration and qualification requirements for offerings made under the new exemptions, a significant change for projects that currently navigate dozens of state regimes. That preemption mirrors the approach taken in the National Securities Markets Improvement Act of 1996 for other federal exemptions, and industry lawyers expect it to be among the most-commented elements of the proposal.
What it means for tokenized securities
One section of Reg Crypto Assets addresses tokenized securities directly, a topic that has moved from theory to live markets this year. Robinhood Chain, launched in July, already carries $170 million in tokenized stock, and Solana-based listings from DraftKings and 1-800-Flowers have drawn real volume within hours of going live. The proposal’s treatment of how tokenized securities are offered, transferred and custodied will shape whether US-registered brokerages can expand those products to American customers or whether the activity stays offshore.
Custody rules matter even more for that market. A tokenized share is only useful to an adviser if the adviser can hold it compliantly. If the new custody framework recognizes qualified custodians capable of holding tokenized securities, the advisory channel opens for products that currently trade only on crypto rails. If it does not, the gap between on-chain markets and registered advisers persists regardless of what the CLARITY Act does for trading venues.
The comment window
OMB review typically takes weeks to months, and the custody proposal will be published for comment after it clears. Reg Crypto Assets comments close October 20. Industry groups, custodians and exchanges are expected to file extensively on both, as the practical details, which entities qualify, what counts as adequate segregation, how bankruptcy remoteness works for crypto held on behalf of clients, will determine whether the rules lower barriers or simply relocate them.
For advisers who have spent four years waiting for a workable custody standard, the direction of travel matters more than the details. The SEC under Atkins is writing rules rather than enforcing old ones, and both proposals point toward accommodation. The CLARITY Act vote this week will show whether Congress meets the agency halfway or leaves it to fill the gap alone.