SEC Sends Proposed Crypto Custody Rules to OMB for Review

The U.S. Securities and Exchange Commission has taken a key step toward rewriting how advisers and funds hold crypto: it sent a proposed overhaul of custody rules to the White House’s Office of Management and Budget (OMB) on Aug. 25 for executive review. That OMB review must finish before the SEC can publish the full proposal and put it up for a commission vote. What’s happening and why it matters - The proposal aims to clarify how registered investment advisers and investment companies may custody crypto assets while complying with existing SEC custody rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Current rules were written long before crypto emerged in regulated portfolios, and firms have raised questions about how custody obligations apply when ownership and control hinge on private keys and blockchain custody systems. - The SEC says the planned rule will both clarify custody for digital assets and remove some legacy custody requirements the agency now considers outdated because market practices have changed. - Full details are not public yet. They will only be released after OMB completes its review and the SEC returns the proposal to the commission for a vote to publish it for public comment. How this differs from the earlier “safeguarding” effort - This is a new rulemaking under SEC Chair Paul Atkins, distinct from the Safeguarding Advisory Client Assets proposal first unveiled in March 2023 and withdrawn in June 2025 (a Gensler-era initiative). The earlier rule would have expanded custody requirements to more client assets — including crypto — and required custody with “qualified custodians” in most cases. Many crypto custody providers did not meet that proposed definition, creating industry uncertainty. - The current custody amendments are being developed from scratch. Key topics likely to attract attention include the definition of a qualified custodian for digital assets, acceptable custody arrangements, and how private-key-based custody fits into SEC safeguards — but the exact text won’t be known until publication. Process and timeline to expect - OMB review is the immediate step; once it returns the proposal (possibly with revisions), the SEC’s three sitting commissioners — all Republicans at present — will vote on whether to publish the proposal for public comment. - If published, the rule would typically be open for at least 60 days of public comment. SEC staff will review submissions and may revise the draft before a final rule vote by the commission. - The proposal is listed as “economically significant,” meaning the SEC will assess expected costs, benefits and other economic effects while it develops the rule. Where this fits in the broader crypto rulemaking picture - Custody is one piece of a broader push by the SEC to address digital-asset markets. In July the commission placed three crypto-related proposals on its 2026 regulatory agenda covering: exemptions/safe harbors for crypto assets; how broker-dealer rules should apply to firms handling digital assets; and market-structure rules for trading crypto on alternative trading systems and exchanges. - The SEC’s 2026–2030 strategy likewise emphasizes digital assets, blockchain infrastructure and tokenized financial products, and calls for clearer treatment of digital assets under federal securities laws, plus continued coordination with the Commodity Futures Trading Commission (CFTC). - Congressional action remains consequential. The Senate is negotiating the Digital Asset Market Clarity Act (often called the CLARITY Act), intended to set a statutory structure for U.S. crypto markets; the House passed its CLARITY bill in 2025. Some jurisdictional changes, such as giving the CFTC authority over digital commodity spot markets, would require legislation, not agency rulemaking. What industry participants should watch - The definition of a “qualified custodian” for crypto and how custody arrangements that rely on private keys and blockchain-native solutions will be treated. - Whether any legacy custody requirements are eliminated and what new conditions or recordkeeping obligations might be imposed. - Key dates: completion of OMB review, the SEC vote to publish, the public comment window (likely 60+ days), and the commission’s final vote. Bottom line The SEC’s custody revamp could reshape how advisers and funds store and safeguard crypto, clarifying long-standing questions but also raising new compliance issues depending on the final drafting. With the proposal now at OMB, the industry’s next concrete milestone will be the SEC’s publication of the proposal and the start of the public comment process. Expect vigorous engagement from advisers, custodians, exchanges and crypto firms once the text is released.