SEC Crypto Custody Rule Overhaul Heads to White House Review

The US Securities and Exchange Commission has submitted a proposed overhaul of its crypto custody rules to the White House for pre-publication review, a procedural step that brings the proposal one stage closer to public comment but leaves its final shape uncertain. For investment advisers, fund managers, and the accounting teams that support them, the move signals that clearer federal guidance on how to hold digital assets for clients is coming, even if the timeline remains open.

What the SEC Actually Submitted

On 25 August 2026, the SEC sent its proposed custody rule to the Office of Information and Regulatory Affairs (OIRA), a unit within the White House Office of Management and Budget. OIRA review is a standard step in the federal rulemaking process for significant regulatory actions. The office can request revisions before returning the proposal to the SEC, which would then hold a commission vote on whether to release it for public comment.

The proposal has not yet been made public. What is known comes from the SEC's own regulatory agenda, which indicates the agency is considering amending existing rules or introducing new ones under two statutes: the Investment Advisers Act of 1940 and the Investment Company Act of 1940.

Scope of the Proposed Changes

According to the SEC's published agenda, the changes would address how investment advisers and registered funds hold client assets, with digital assets explicitly included in scope. The regulator has stated the intent is to resolve existing ambiguity about how firms can maintain crypto on behalf of clients while remaining compliant with federal securities requirements.

Current rules, written well before digital assets existed, create friction for firms that want to custody crypto: questions arise around what constitutes a "qualified custodian," how possession and control work for on-chain assets, and how segregation requirements translate to blockchain-based holdings. The proposed rule is designed to address those gaps directly.

Where the Proposal Sits in the Broader Legislative Picture

The submission to OIRA is partly a product of legislative timing. The CLARITY Act, a market structure bill that would establish a comprehensive federal framework for digital assets, remains stalled in the Senate and is not expected to advance until lawmakers return from the August recess in September. With legislation on hold, the SEC is using its existing rulemaking authority to move the digital asset agenda forward. Chair Paul Atkins, who took office in 2025, has consistently prioritised formal rulemaking over enforcement as the agency's primary tool for engaging with crypto markets.

Why This Matters for Investment Advisers and Funds

The practical stakes for regulated entities are significant. Investment advisers managing client crypto must currently navigate rules that were not designed for digital assets, and the absence of clear SEC guidance on qualified custodians for crypto has forced many firms into conservative, often operationally cumbersome arrangements.

Qualified Custodian Clarity

A central unresolved question is which entities qualify as custodians for crypto under federal securities law. Banks, registered broker-dealers, and certain trust companies can currently serve as qualified custodians for traditional securities, but the application of those categories to digital assets has never been definitively settled by the SEC through formal rulemaking. A new rule could specify whether and how crypto exchanges, dedicated digital asset custodians, or self-custody arrangements satisfy the requirement, each answer carrying very different compliance and counterparty risk implications.

Segregation, Control, and On-Chain Verification

Traditional custody rules require that client assets be held separately from firm assets and that the adviser or custodian maintain demonstrable control. For on-chain assets, "control" typically means custody of private keys, and "segregation" may need to be evidenced through wallet-level separation rather than ledger entries alone. The proposed rule is expected to address how these concepts translate to blockchain environments, potentially setting requirements around multisig arrangements, cold storage, and on-chain attestation.

Accounting and Financial Reporting Implications

The custody rule overhaul intersects directly with the financial reporting obligations of investment firms, and accounting teams should treat it as a live issue rather than a distant regulatory event.

Impact on Crypto Financial Statements Under US GAAP

Under FASB's ASC 350-60, which took effect for fiscal years beginning after 15 December 2024, entities holding crypto assets must carry them at fair value with changes recognised in net income each period. That standard applies to the holder of the asset. The custody rule matters here because it will clarify whether a firm is the holder for accounting purposes or whether the custodian is, particularly in arrangements where legal title or on-chain control is ambiguous.

If the SEC rule establishes that certain custodial arrangements constitute "safekeeping" without transfer of beneficial ownership, the accounting treatment for both the adviser and the custodian may need to be reconsidered. Firms that have been recognising crypto assets on their own balance sheets under ASC 350-60 fair value guidance will want to confirm that the custodial structure supports that treatment once a final rule is in place. For those preparing crypto compliance reporting, the custody framework and the accounting framework are increasingly inseparable.

Fund-Level Reporting and the Investment Company Act

For registered investment companies, the stakes are higher still. Funds are required to value their assets for NAV calculation purposes, and the methodology for valuing crypto assets at fair value under US GAAP interacts with custodial verification. If a fund cannot demonstrate that it controls the digital assets it holds, the auditor's ability to confirm existence and valuation is compromised. A clear SEC standard on what constitutes custody will directly support audit procedures and reduce the risk of qualified opinions on crypto financial statements.

It is also worth watching whether the final rule creates new recordkeeping requirements that affect how firms document custodial arrangements in their books. Any such requirements would need to be reflected in accounting workflows, particularly for firms using digital asset accounting software to automate journal entries from custodial data feeds.

Interaction with AICPA Practice Guidance

The AICPA has been active in developing practitioner guidance for digital asset engagements. Recent updates to the Digital Assets Practice Aid, including new chapters on stablecoin and mining revenue accounting, reflect the profession's effort to stay ahead of regulatory developments. An SEC custody rule would give auditors a concrete regulatory anchor for assessing whether a client's custodial arrangements are compliant, which in turn affects the scope and risk assessment of digital asset audits.

The Enforcement Backdrop

Chair Atkins has made clear that the SEC's posture toward crypto has shifted from using enforcement as a de facto policy tool toward developing rules through formal notice-and-comment procedures. The agency wound down several high-profile enforcement actions against crypto companies during 2025 as part of that repositioning. The custody rule overhaul is consistent with that approach: rather than pursuing firms for failing to comply with rules that were never clearly articulated, the SEC is attempting to articulate the rules first.

That shift does not eliminate enforcement risk. Once a final custody rule is in place, compliance will be expected, and the SEC has shown it will act when clear rules are violated. Firms that begin mapping their custodial arrangements now, before a public draft is even released, will be better placed to identify gaps and remediate them before any compliance deadline.

What Firms Should Do Now

The OIRA review period offers a window for preparation. Firms should not wait for a public draft before beginning internal work.

Immediate Steps for Compliance and Accounting Teams

First, document every custodial arrangement currently in place for client digital assets, including the legal basis for the custodian's qualification, the contractual terms covering segregation and control, and how those arrangements are reflected in the firm's books. Second, review how existing crypto US GAAP accounting treatment, particularly ASC 350-60 fair value recognition, is supported by custodial documentation, and flag any gaps where the accounting treatment assumes a level of control that the custody agreement does not clearly establish. Third, engage legal counsel to assess whether current custodians would qualify under the categories likely to be addressed in the final rule, using the SEC's existing statements and regulatory agenda language as a starting point.

Finance leads should also consider the staffing dimension. Regulatory change of this nature requires accounting personnel with specific digital asset expertise, and as discussed in our earlier analysis of how accounting staff turnover creates financial reporting risk, firms that lose key people during a transition period face compounded exposure. Succession planning for digital asset accounting roles is not a luxury at this stage of the regulatory cycle.

Finally, once a public draft is released for comment, firms and their advisers should engage in the comment process. The SEC's formal rulemaking structure is precisely the mechanism through which industry can shape how concepts like "control," "segregation," and "qualified custodian" are defined in a digital asset context.

Frequently Asked Questions

What is OIRA and why does SEC rule review go through it?

The Office of Information and Regulatory Affairs is a unit within the White House Office of Management and Budget that reviews significant federal regulatory proposals before they are published. It can request changes to a proposed rule, return it to the originating agency for revision, or clear it for publication. The SEC's crypto custody proposal is currently in this review stage.

Does this proposal change anything immediately for investment advisers holding client crypto?

No. The proposal has not been made public and has not yet been released for public comment. Current SEC rules remain in effect. Advisers should continue to comply with existing custody requirements while preparing for the changes likely to emerge from the formal rulemaking process.

How does the proposed custody rule interact with ASC 350-60 fair value accounting?

ASC 350-60 requires entities to carry crypto assets at fair value with changes in income each period. The custody rule matters because it will clarify who legally controls an asset and therefore who recognises it on their balance sheet. Ambiguous custodial arrangements can create uncertainty about whether the adviser, the fund, or the custodian should be the recognising entity under US GAAP.

Will the rule affect how auditors verify digital asset holdings?

Almost certainly. Auditors currently face challenges confirming existence and control for on-chain assets because there is no settled regulatory standard for what constitutes compliant custody. A clear SEC rule will give auditors a framework to assess custodial arrangements as part of digital asset audit procedures, potentially reducing audit risk and the likelihood of scope limitations on crypto financial statements.

What is the Investment Company Act's relevance here?

Registered investment companies, including mutual funds and ETFs, are governed by the Investment Company Act of 1940, which imposes specific custody requirements for fund assets. The SEC's proposal is expected to address how those requirements apply to digital assets held by registered funds, with direct implications for NAV calculation, valuation procedures, and fund-level financial reporting.

Source: Cointelegraph