SEC Revives Crypto Custody Rule for Investment Advisers
March 5, 2025 — The U.S. Securities and Exchange Commission has taken its first step toward resurrecting crypto custody regulations for investment advisers, sending a new proposal concept to the White House for review. The move comes roughly two years after the agency’s previous effort under former Chair Gary Gensler collapsed following industry-wide opposition.
Immediate Details & Direct Quotes
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The SEC submitted its latest custody rule concept to the White House Office of Budget and Management this week, where it will undergo review before the agency can formally propose the regulation. According to the SEC’s public regulatory agenda, the initiative “would improve and modernize the regulations around custody of investment adviser client assets and fund assets, including to address crypto assets.”
The proposal also aims to “remove burdens from certain outdated provisions that are no longer needed to provide investor protection given the evolution in the markets and security trading and holding practices,” the agency stated.
This marks the SEC’s second attempt at establishing crypto custody guidelines. In 2023, then-Chair Gary Gensler proposed requiring investment advisers to place client cryptocurrency with a narrow field of “qualified custodians”—typically chartered banks, trust companies, SEC-registered broker-dealers, or futures commission merchants under CFTC jurisdiction.
Gensler issued a stark warning during that announcement: “Make no mistake: Based upon how crypto platforms generally operate, investment advisers cannot rely on them as qualified custodians.”
Market Context & Reaction
The previous proposal drew sharp criticism from an unusual coalition of financial firms, crypto platforms, and even another regulatory agency. The Small Business Administration’s senior lawyers argued the SEC “drastically underestimates potential impacts” that could force smaller advisers out of business. Venture capital firm a16z went further, calling the effort “illegal, infeasible, and dangerous.”
The 2023 proposal ultimately failed to secure final approval before Gensler departed, and the SEC pulled it last year.
Current SEC Chairman Paul Atkins has made crypto-friendly regulation a cornerstone of his tenure. The agency recently released its “Regulation Crypto Assets” proposed rule—the first major crypto-specific regulation pitched by the SEC—and has additional initiatives in the pipeline, including clarifying crypto compliance for broker-dealers and clearing a path for securities tokenization.
Market reaction details were not immediately available.
Background & Historical Context
The industry landscape has shifted significantly since the SEC’s first custody attempt. Crypto businesses have secured a wave of new federal trust bank charters, expanding the number of institutions qualified to handle digital assets.
The SEC’s regulatory agenda suggests an October timeline for the custody proposal, though the agency’s estimates have historically proven optimistic. Regulation Crypto, for example, initially appeared on the April agenda but wasn’t proposed until August. Previous SEC predictions have sometimes missed by more than a year, and some items never advanced at all.
The current approach signals a friendlier tone toward the industry, consistent with Atkins’ stated mission to ease crypto business operations in the United States.
What This Means
The revived custody rule could provide much-needed clarity for investment advisers navigating how to safely hold client crypto assets. Industry participants have long sought definitive guidance on which custodians meet regulatory standards.
If the proposal follows the SEC’s stated goals, it could modernize outdated custody provisions while addressing the unique challenges of digital assets. The expanded field of federally chartered trust banks may give advisers more qualified custodian options than the 2023 version offered.
The October timeline suggests the SEC aims to move efficiently, though regulatory reviews often face delays. Advisers and crypto platforms should monitor the White House review process and prepare for potential compliance changes.
This article is for informational purposes only and does not constitute financial advice. Readers should conduct their own research before making investment decisions.
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