The US Securities and Exchange Commission submitted a new proposal on August 25 to the White House Office of Management and Budget for review, covering investment advisers and investment firms that hold digital assets on behalf of clients, Bloomberg reported.

The federal regulatory agenda indicates the proposal aims to "clarify the framework for crypto asset custody," addressing how institutions can hold digital assets for clients without violating SEC regulations. The SEC said the proposal will also eliminate certain custody requirements that have become outdated as a result of market developments and changes in how assets are traded and held.

What the Crypto Custody Proposal Would Resolve for Investment Advisers

The custody question has been one of the most persistent operational obstacles to institutional crypto allocation. Registered investment advisers operate under custody rules written for traditional securities held at qualified custodians — a framework that maps poorly onto assets secured by private keys, held in multisignature arrangements, or staked in protocols.

The practical consequence has been ambiguity about which arrangements satisfy the rules. Advisers wanting to hold digital assets directly for clients have faced uncertainty about whether their custody solution qualifies, which has pushed many toward ETF wrappers rather than direct holdings — a structural reason ETF flows have been the dominant institutional access channel.

Clarifying that framework would give advisers a defined path to direct custody. The SEC's explicit reference to removing outdated requirements suggests the proposal loosens rather than tightens — recognizing arrangements the current rules did not contemplate.

Paul Atkins' Modernization Agenda Advances While Market Structure Stalls

The proposal is part of Chairman Paul Atkins' push to modernize the SEC's regulatory framework, and it advances the administration's crypto policy agenda through rulemaking while market structure legislation remains stalled in the Senate.

That parallel track matters. The Clarity Act reached its farthest procedural point in August when Majority Leader Thune filed a cloture motion, but the bill missed the pre-recess voting window and needs at least 10 Senate Democrats to clear the 60-vote threshold. A bipartisan proposal on the government-ethics provision has sat unanswered at the White House.

Agency rulemaking does not require 60 votes. With three Republican commissioners currently seated, the SEC can advance custody rules regardless of what happens legislatively. The trade-off is durability — rules made through rulemaking can be unmade the same way, whereas statute is considerably harder to reverse.

The SEC Rulemaking Timeline From OMB Review to Final Rule

The full text will be released after OMB completes its review. The office may make modifications before the proposal returns to the SEC.

From there, the sequence runs: a vote by the commission, currently composed of three Republican members; if approved, a public comment period of at least 60 days; then revisions; then a second vote before the final rule takes effect.

That is a multi-month process at minimum. The proposal reaching OMB is a meaningful procedural step rather than a near-term change to what advisers can do — the operative rules remain the existing ones until the full sequence completes.

Custody Clarity as the Institutional Unlock Beyond ETF Wrappers

The rulemaking arrives with institutional crypto demand running at its strongest levels since October 2025. Spot Bitcoin ETFs have taken more than $2.5 billion over six consecutive sessions, with assets climbing to $98.56 billion from $78.67 billion a week earlier. Ether, Solana and XRP funds have run parallel streaks.

Nearly all of that flow is routed through ETF wrappers, which is precisely what custody ambiguity produces — advisers who want crypto exposure but cannot confidently custody it directly buy the fund instead. A workable direct-custody framework would open a second channel: advisers holding assets for clients in separately managed accounts, with the fee structures and tax treatment that structure allows.

Nexo analyst Liya Kalchev has described the Clarity Act as the measure that would unlock a broader institutional bid. Custody rules are narrower in scope but address a more immediate operational constraint — and unlike the legislation, they do not depend on Senate arithmetic.