SEC Submits Proposed Crypto Custody Rule Overhaul to OMB for Review

The U.S. Securities and Exchange Commission has moved its crypto custody rewrite to the next stage, sending a proposed overhaul of custody rules to the White House's Office of Management and Budget (OMB) on Aug. 25 for executive review. The OMB process must be completed before the SEC can release the proposal publicly and bring it to a commission vote to publish for comment. Focus of the proposal The rulemaking is intended to spell out how registered investment advisers and investment companies can custody crypto assets while meeting existing SEC custody requirements under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The current framework predates crypto and has left firms uncertain about how obligations apply when control and ownership depend on private keys and blockchain-based custody models. The SEC has indicated the package would both clarify custody treatment for digital assets and roll back certain legacy custody requirements the agency now views as outdated due to changes in market practice. The text remains confidential until the OMB review concludes. Not a revival of the prior "safeguarding" proposal This effort is a fresh rulemaking under SEC Chair Paul Atkins and is separate from the Safeguarding Advisory Client Assets proposal unveiled in March 2023 and withdrawn in June 2025, a Gensler-era initiative. The earlier approach would have broadened custody requirements to more client assets, including crypto, and generally pushed custody toward "qualified custodians." Because many crypto custody providers would not have met that definition, the proposal generated significant uncertainty across the industry. The new amendments are being developed from the ground up. Market attention is expected to center on how the SEC defines a qualified custodian for digital assets, which custody structures it deems acceptable, and how private-key-based arrangements fit within SEC safeguards. Those specifics will not be known until the proposal is published. Process and expected timeline OMB review is the immediate hurdle. After the proposal returns from OMB, potentially with revisions, the SEC's three sitting commissioners (all Republicans currently) will vote on whether to publish it for public comment. If released, the comment period would typically run at least 60 days. SEC staff would then review comments and could revise the draft ahead of a final vote. The proposal is designated "economically significant," signaling that the SEC will evaluate expected costs, benefits, and other economic impacts as part of the rule development. How it fits into the broader crypto agenda Custody is one element of the SEC's wider push on digital-asset regulation. In July, the commission added three crypto-related proposals to its 2026 regulatory agenda covering: exemptions or 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 also highlights digital assets, blockchain infrastructure, and tokenized financial products, and calls for clearer treatment of digital assets under federal securities laws alongside continued coordination with the Commodity Futures Trading Commission (CFTC). Congress remains a key variable. The Senate is negotiating the Digital Asset Market Clarity Act (often called the CLARITY Act) to establish a statutory framework for U.S. crypto markets; the House passed its CLARITY bill in 2025. Shifts such as granting the CFTC authority over digital commodity spot markets would require legislation, not SEC rulemaking. What to watch Key issues include the definition of a "qualified custodian" for crypto, treatment of custody structures built around private keys and blockchain-native solutions, and whether any legacy custody obligations are removed or replaced with new conditions and recordkeeping requirements. Milestones include the completion of OMB review, the SEC vote to publish, the public comment window (likely 60+ days), and the commission's final vote. Bottom line A revamped SEC custody regime could materially change how advisers and funds store and safeguard crypto, resolving long-running questions while potentially introducing new compliance burdens depending on the final drafting. With the proposal now at OMB, the next concrete inflection point for the industry will be SEC publication and the opening of the public comment period.