The SEC’s action, first reported on Wednesday, marks a potential turning point in a years-long regulatory tug-of-war over custody standards for cryptocurrencies. The proposal, originally floated in February 2023, would require registered investment advisers to hold client assets—including digital assets—with a “qualified custodian.” The rule would also expand the definition of qualified custodian to include certain state-chartered trust companies and other entities, while tightening requirements around the segregation and reporting of crypto holdings.
Industry reaction has been mixed. The Blockchain Association, a crypto trade group, argued in 2023 that the original proposal could effectively ban investment advisers from custodying crypto assets because few crypto platforms meet the proposed standards. The SEC, under Chair Gary Gensler, has maintained that the rule is necessary to protect investors from the risks of commingling, theft, and insolvency that have plagued crypto exchange failures like FTX.
The White House review, conducted by the Office of Information and Regulatory Affairs, is typically the last major step before a rule is published in the Federal Register and takes effect. The OMB review process can take anywhere from a few weeks to several months, depending on complexity and political considerations. The final rule could differ from the initial proposal based on the tens of thousands of public comments the SEC received.
“This submission signals that the SEC believes it has addressed the most serious concerns and is ready to move forward,” said Lee Reiners, a former Federal Reserve examiner and current policy director at the Duke University Financial Economics Center. “But the crypto industry is likely to challenge any rule it sees as unworkable, so the legal fight may not end with the publication.”
If adopted, the rule would impose uniform custody standards across asset classes, potentially forcing crypto-native custodians to meet new capital, disclosure, and insurance requirements. For institutional investors, clearer rules could unlock greater participation from pension funds and endowments that have sat on the sidelines due to regulatory uncertainty. Critics, however, warn that overly prescriptive rules could drive crypto custody offshore or into decentralized self-custody solutions, reducing regulatory visibility.