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The U.S. Securities and Exchange Commission’s (SEC) proposed amendments to its custody rules for investment advisers and funds, which include provisions for digital assets, have officially entered the White House review process as of August 25th. This significant development marks a critical juncture for the proposed regulation, initiating an active pre-publication review by the Office of Information and Regulatory Affairs (OIRA). The outcome of this review will have direct and substantial consequences for registered investment advisers, investment companies, and the financial institutions responsible for holding their assets, including those dealing with cryptocurrencies.
Navigating the Regulatory Labyrinth: OIRA Review Commences
The Office of Information and Regulatory Affairs, a division within the White House Office of Management and Budget (OMB), is tasked with coordinating the executive branch’s review of significant draft regulations before they are officially published by federal agencies. The inclusion of the SEC’s "Amendments to the Custody Rules" in the OIRA database signifies that the rulemaking process has advanced to a crucial stage. While the OIRA record indicates the proposal is at the "proposed-rule" stage, it notably does not specify a legal deadline for its completion. This means that while the agency is actively working on the proposal, the exact timeline for its finalization and implementation remains fluid.
The SEC’s Unified Agenda of Regulatory and Deregulatory Actions provides further insight into the agency’s planning. The current entry for this rulemaking indicates that the SEC is contemplating changes to the custody requirements for client assets managed by investment advisers and assets held by investment companies, with specific attention to digital assets. The projected target for the issuance of a notice of proposed rulemaking is October 2026. However, it is crucial to understand that this date represents an internal agency planning target rather than a binding legal commitment. The OIRA record, which reflects the immediate procedural status, underscores the absence of a definitive legal deadline.
Impact on Key Market Participants
The proposed amendments to the custody rules will most directly affect registered investment advisers and investment companies. These entities rely on custodians that meet stringent federal requirements to safeguard client assets. Consequently, the rulemaking extends its reach to include banks and state-chartered trust companies that engage in the custody of digital assets on behalf of these financial intermediaries. A significant aspect of the current situation is that the publicly available records offer no concrete language outlining the specific changes being considered. This lack of detail leaves the precise direction of any forthcoming revisions regarding eligibility criteria, operational controls, or the requisite safeguards for digital asset custodianship unresolved.
A Reset in Regulatory Approach
This current rulemaking initiative follows a notable shift in the SEC’s regulatory strategy concerning the safeguarding of advisory client assets. In June 2025, the SEC formally withdrew its 2023 safeguarding proposal. This withdrawal effectively ended the regulatory path for that specific measure and signaled that any future regulatory action would necessitate the initiation of a completely new proposal. Therefore, the draft regulation currently under review by OIRA represents a fresh start for the SEC’s efforts in this area, rather than a revival or amendment of its prior proposal. This distinction is important as it means the new proposal will not be bound by the specific requirements or objections raised during the review of the 2023 version.
The Role of Staff No-Action Letters
In the interim period between the withdrawal of the 2023 proposal and the current rulemaking effort, the market has been guided by a more limited, albeit practical, staff position. On September 30, 2025, investment management staff from the SEC issued a no-action letter that provided a degree of clarity for registered advisers and regulated funds. This letter indicated that the staff would not recommend enforcement actions against entities that treated certain state-chartered trust companies as qualifying custodians for digital assets, provided that specific conditions were met.
Conditions for Custody Under the No-Action Letter
The conditions outlined in the September 30, 2025, no-action letter are comprehensive and designed to ensure a robust level of protection for client and fund assets. These conditions include:
- Authorization and Licensing: The state trust company must be duly authorized and licensed to operate as a trust company in its respective state.
- Safeguarding Policies and Procedures: The custodian must have comprehensive and robust policies and procedures in place for the safeguarding of digital assets, aligned with industry best practices.
- Audited Financial Statements: The custodian must provide audited financial statements annually, prepared in accordance with generally accepted accounting principles (GAAP).
- Independent Control Reports: The custodian must obtain and provide annual independent reports on its internal controls relevant to the safeguarding of assets, such as SOC 1 or SOC 2 reports.
- Custody Agreements: Custody agreements must explicitly state that client or fund assets are segregated from the custodian’s own assets and that these assets will not be used for lending, pledging, or rehypothecation without prior written consent from the client or fund.
- Risk Disclosures: Advisers or funds must disclose all material risks associated with using the custodian and holding digital assets to their clients or shareholders.
- Best Interest Determinations: Advisers or funds must affirmatively determine and document that the use of the particular custodian is in the best interests of their clients, funds, and shareholders, considering factors such as security, operational capacity, and regulatory compliance.
From Staff Guidance to Formal Rulemaking
While the no-action letter represents a staff enforcement position and does not carry the force of law, it has served as a de facto baseline for advisers, funds, banks, and state trust companies operating in the digital asset custody space. The current SEC crypto custody rewrite, by entering the White House review process, aims to formalize and potentially expand upon this baseline. The eventual release of the SEC’s proposed rule language will transform the current informal guidance into a substantive regulatory framework. This will undoubtedly spark a significant debate among stakeholders regarding which types of institutions will be permitted to custody digital assets and the specific, legally binding safeguards they will be required to implement. The implications of this rulemaking extend beyond mere operational adjustments; they touch upon the broader integration of digital assets into the traditional financial system and the evolving landscape of investor protection in the digital age. The coming months, as the proposal moves through the review process and public comment, will be crucial in shaping the future of digital asset custody in the United States.
