The proposal would modernize how investment firms hold digital assets on behalf of clients.
The Securities and Exchange Commission has sent a proposal to modernize crypto custody rules to the White House for review, according to multiple reports. The submission marks a formal step in the federal rulemaking process, requiring interagency review before any public comment period begins.
The proposal is described by several outlets as a sweeping overhaul of existing custody requirements for investment firms holding digital assets. Custody rules govern how brokers, advisers, and other regulated entities safeguard client assets against loss, theft, or misuse. Current rules were largely written before digital assets existed as a mainstream asset class.
Investment firms have long argued that outdated custody standards create uncertainty for institutions seeking exposure to crypto. Without clear rules, many firms have avoided offering direct custody services or have relied on third-party qualified custodians instead. A modernized framework could resolve some of that ambiguity.
The White House review is typically handled by the Office of Information and Regulatory Affairs, which examines proposed rules for cost, feasibility, and consistency with administration policy before they can be published for public comment. This stage does not guarantee the rule's eventual adoption or its final form.
The timing is notable. Congress has struggled for years to pass comprehensive crypto market structure legislation that would clarify which federal agency oversees which digital assets. Multiple bills have stalled amid disagreements over the roles of the SEC and the Commodity Futures Trading Commission. With legislative action delayed, regulatory agencies appear to be moving on their own to address specific gaps, including custody.
Custody has been one of the most persistent points of friction between the crypto industry and regulators. Firms have cited unclear standards as a barrier to offering institutional-grade services, while regulators have expressed concern about investor protection in the event of hacks, bankruptcies, or mismanagement. High-profile collapses in the crypto industry in recent years intensified scrutiny of how client assets are held and segregated from company funds.
The proposal's exact contents have not been made public. Reports describe it broadly as an effort to overhaul or modernize custody requirements, but specific provisions, such as capital thresholds, insurance requirements, or definitions of qualified custodians, remain unconfirmed pending release of the formal rule text.
Once White House review concludes, the SEC would typically publish the proposed rule in the Federal Register, opening a public comment period. That process can take months and often results in revisions before a final rule is adopted. Industry participants, legal experts, and advocacy groups are expected to weigh in once the text becomes available.
Market Impact
A clearer custody framework could encourage more traditional investment firms to offer digital asset services, potentially expanding institutional access to crypto markets. Firms currently deterred by regulatory ambiguity may view a finalized rule as a green light to build out custody infrastructure.
However, the rule remains in an early stage. White House review does not guarantee swift finalization, and the proposal could be altered significantly before any public version emerges. Markets are likely to react more strongly once the rule's specific provisions become public and the comment period begins.
The submission signals continued regulatory movement on crypto custody even as Congress remains unable to pass broader market structure legislation. Further clarity is expected once the proposal clears White House review and enters public comment.
Frequently Asked Questions
What does the SEC's proposal aim to change?
It seeks to modernize rules governing how investment firms hold and safeguard digital assets on behalf of clients, according to reports on the submission.
Why is the proposal going to the White House first?
Federal rulemaking typically requires interagency review, often through the Office of Information and Regulatory Affairs, before a proposed rule can be published for public comment.
Does this mean the rule is final?
No. White House review is an early procedural step. The rule must still be published for public comment and could be revised before final adoption.
How does this relate to congressional crypto legislation?
Congress has struggled to pass comprehensive crypto market structure bills, and the SEC's move on custody appears to address a specific regulatory gap while broader legislation remains stalled.
Originally reported by AltcoinGordon, written by Amelia Brooks. Republished with permission.
View the original on AltcoinGordon →
The post White House Begins Review of SEC’s Overhauled Crypto Custody Rule appeared first on TheCoinrise.com.
