SEC Proposes Amendments to Crypto Custody Rules for Investment Advisers

The SEC's proposed amendments could reshape how investment advisers manage client crypto assets, impacting institutional adoption and compliance standards.

• On August 25, 2026, the SEC submitted proposed amendments to its custody rules for review by the White House Office of Management and Budget.
• This proposal aims to clarify compliance pathways for registered investment advisers holding client crypto assets, following the withdrawal of a stricter 2023 proposal.
• The targeted publication date for the formal proposal is October 2026, with public comments expected thereafter.

• Previous efforts under former SEC Chair Gary Gensler included a 2023 proposal that sought to restrict crypto custody options but was withdrawn in June 2025.
• The current administration is pursuing a deregulatory agenda for digital assets, reflecting a shift toward industry-friendly standards and institutional adoption.
• This proposal marks the SEC's second major attempt to establish dedicated crypto custody standards, aiming to modernize outdated provisions while reducing regulatory burdens.

On August 25, 2026, the SEC transmitted draft amendments titled "Amendments to the Custody Rules" to the Office of Information and Regulatory Affairs (OIRA) for pre-publication review. This initiative is part of a broader effort to clarify compliance pathways for registered investment advisers and investment companies regarding client crypto assets under the Investment Advisers Act and Investment Company Act. The proposed amendments aim to address lingering questions from advisers about crypto custody compliance, which has been a significant concern in the evolving digital asset landscape.

The SEC's approach reflects a notable shift from previous regulatory stances, particularly those under former Chair Gary Gensler, whose 2023 Safeguarding Rule proposal sought to impose stricter restrictions on crypto custody options. The withdrawal of that proposal in June 2025 paved the way for the current administration's more flexible and industry-friendly approach. By eliminating outdated requirements that are no longer essential for investor protection, the SEC aims to foster a more conducive environment for institutional adoption of crypto assets.

This proposal is classified as deregulatory and economically significant, indicating its potential impact on the market. The SEC is targeting October 2026 for the formal release of the proposal, followed by a public comment period. This timeline suggests that the agency is keen to engage with stakeholders and refine the proposed rules based on industry feedback.

Market participants are optimistic about the potential for reduced compliance uncertainty, which could accelerate institutional adoption of crypto services. The proposal's modernizing intent has been welcomed by industry groups, signaling a departure from previous restrictive approaches. However, the proposal remains in early review, and details are subject to revisions by the OMB.

As the regulatory landscape for digital assets continues to evolve, the SEC's proposed amendments represent a critical step toward establishing a clearer framework for crypto custody. This could lead to increased confidence among investment advisers and their clients, ultimately shaping the future of crypto asset management.

• Investment Advisers: They will benefit from clearer compliance pathways and reduced regulatory burdens.
• Institutional Investors: Increased confidence in crypto custody could lead to greater institutional participation in the crypto market.
• Crypto Custodians: Firms providing custody services may see a surge in demand as regulations become more favorable.
• Regulatory Bodies: Other regulators may adjust their frameworks in response to the SEC's proposed changes.

• October 2026: The SEC's targeted publication date for the formal custody rule proposal; this will provide clarity on the final regulatory framework.
• Public Comments: The feedback from industry stakeholders during the public comment period will indicate potential adjustments to the proposal and its reception.
• Market Reactions: Watch for shifts in institutional investment patterns in crypto assets as compliance uncertainties are addressed.