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SEC resurrecting U.S. crypto custody rule the previous administration failed to land
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- DeepHorus
The U.S. Securities and Exchange Commission is reviving efforts to establish a crypto custody rule for investment advisers, a regulatory push that previously stalled. The agency has taken a preliminary step by sending the new concept to the White House Office of Budget and Management for review. This move aims to provide much-needed clarity for the rapidly evolving digital asset market.
This initiative marks a second attempt after a 2023 proposal failed to gain final approval. That earlier effort, under then-Chair Gary Gensler, sought to strictly limit where investment advisers could store clients' crypto assets. It faced intense opposition from the crypto industry, financial firms, and even other government agencies like the Small Business Administration.
The previous 2023 proposal would have restricted client crypto to a narrow set of "qualified custodians," such as chartered banks or registered broker-dealers. Critics, including venture capital firm a16z, argued the plan was "illegal, infeasible, and dangerous." The rule was ultimately pulled before Gensler left office, leaving compliance questions unresolved.
Under current SEC Chairman Paul Atkins, the tone has shifted dramatically. The new proposal is described as an effort to "remove burdens" from outdated regulations. It aims to modernize custody rules to address crypto assets while easing compliance for the industry, reflecting Atkins's pro-crypto stance.
The exact details of the new rule remain under wraps, as it is still in a very early "concept" stage. The White House review is a mandatory step before the SEC can formally draft and propose the regulation. The process is expected to take time, with the final rule still a significant distance away.
The crypto landscape has also changed since 2023. The industry has seen a surge in new federal trust bank charters, expanding the pool of potential custodians. The SEC is simultaneously advancing other crypto-focused rules, including a proposed "Regulation Crypto Assets" and potential securities tokenization guidelines.
Market participants are cautiously optimistic about the more collaborative approach. However, the lack of specifics fuels uncertainty. The success of this second attempt will likely determine how easily U.S. investment advisers can integrate digital assets into their service offerings.
