On August 25, 2025, the U.S. Securities and Exchange Commission quietly submitted a revision proposal for custodial rules regarding “holding crypto assets on behalf of clients” to the Office of Management and Budget at the White House. This proposal, whose full text has not yet been made public, targets a long-standing unresolved issue: how investment advisers and investment companies can hold digital assets on behalf of clients in a manner that complies with SEC custodial rules, rather than crossing regulatory red lines. A day later, on August 26, media disclosed the submission news, and the market realized that, in the context where Congressional legislation on crypto market structure still remains stalled in the Senate and has difficulty becoming law, it is not the stalled debates among legislators driving the changes in custodial boundaries, but rather the SEC taking the initiative to reshape compliance paths through rule revisions. Chairman Paul Atkins publicly regards this custodial proposal as a part of the “modernization of the regulatory framework,” suggesting that the compliance answers for digital asset custody will likely be written first in the technical reviews between regulatory agencies and the White House, with the industry passively following the new custodial order.
With Congress Stalled, the SEC Takes the Lead in Rewriting Custodial Rules
The market originally anticipated a top-down "crypto market structure legislation" from Congress that would provide a unified answer regarding asset designation, trading, and custody boundaries. However, as of now, such legislation remains in the Senate stage, with no final bill formed and the textual gaps continuously extending. In contrast to the tug-of-war of Congressional debates, the SEC chose to leverage existing securities law authority to continue advancing its regulatory agenda through the formulation and revision of rules: the custodial rule revision proposal submitted to the Office of Management and Budget on August 25 is the latest example of this “regulatory-first” approach.
In Paul Atkins’ narrative, this is not just a technical detail, but part of the "modernization of the regulatory framework": by updating the rules for investment advisers and investment companies holding digital assets on behalf of clients, it incorporates long-standing compliance issues into the existing securities system. The proposal aims to modernize the custodial framework, respond to uncertainties about digital asset custody arrangements, and plans to remove some custodial requirements deemed outdated due to market evolution, while deliberately keeping specific terms undisclosed at this stage, leaving the industry to speculate on the future intensity and scope of the constraints based solely on directional statements.
This pattern of “legislative lag and regulatory lead” brings dual effects on compliance expectations. On one hand, it sends a clear signal to the market: there is no need to wait for Congress to take all-encompassing action; the daily operations of digital asset custody will first be brought under SEC rules, and if investment advisers and investment companies continue holding relevant assets on behalf of clients, they must prepare to reconstruct their business processes within the new custodial order. On the other hand, in the absence of complete terms, review schedules, and committee voting arrangements, institutions face a regulatory target that has been established in advance but remains highly uncertain—they know compliance boundaries are about to be redrawn, yet are unable to determine whether existing custodial arrangements will be seen as “outdated practices” requiring minor adjustments or outright risky operations that will be rejected. Against the backdrop of Congress being long-stalled, this regulatory restructuring led by the SEC is quietly rewriting the power structure and compliance expectation boundaries for digital asset custody in the United States.
Who is Named: Investment Advisers and Funds Facing Custodial Pressure
In this round of regulatory restructuring, the direct targets are not trading platforms but rather investment advisers and investment companies that hold digital assets on behalf of clients. The core focus of the proposal is these institutions that manage portfolios, place trade orders, and formally “custody” digital assets on paper. How they will prove they are not crossing SEC’s custodial bottom line will no longer be merely a technical issue in contract details and legal letters, but will be integrated into a unified regulatory framework. For a long time, the industry has repeatedly questioned the SEC around a basic issue—how to hold digital assets without violating custodial regulations—and the answers have remained at the level of fragmented Q&As and enforcement cases, forcing advisers and funds to reassess with every product innovation, “Is this considered custody, is it deemed a violation?”
The root of the confusion lies in the fact that current custodial rules are designed for traditional securities and cash custody environments. The contract texts assume a relational structure between brokers, banks, and independent custodians, but do not adequately cover the technical characteristics and risk profiles of on-chain assets. The result is that investment advisers and funds, when choosing custodial arrangements, must walk a tightrope between “market practices that seem safe” and the unknowns of “potentially being deemed a violation by the SEC.” This proposal clearly aims to establish a dedicated custodial framework for digital assets and remove some requirements deemed outdated, essentially forcing these institutions to reevaluate their boundaries with custodians, technology service providers, and trading platforms: which entities can still be considered qualified custodians, which product structures may lose their issuability due to unrecognized custodial paths, and which services aimed at retail or high-net-worth clients must make compliance retrofits before the rules take effect. For investment advisers and funds, this is not just an update of compliance terms but a systemic reconstruction of custodial objects, custodial paths, and product design logic.
From White House Review to Public Solicitation: The Long Process of Rule Implementation
Submitting the proposal to the Office of Management and Budget is just the starting point of a long race. According to existing U.S. regulatory pathways, major rules must first undergo administrative review by the OMB, assessing their costs, market impacts, and coordination with existing regulatory frameworks; after passing this hurdle, SEC commissioners will then vote on whether to “push the proposal to the public,” initiating at least a 60-day public comment period. Once market opinions are gathered, the SEC team still needs to revise the terms, followed by the commissioners voting a second time to confirm the final version and effective date; this entire procedure must be completed before it truly impacts the daily operations of investment advisers and funds. As of August 26, 2026, public information remains at the “proposal under review” stage, with no timeline for OMB review completion or signals of SEC arranging commissioner voting, and complete terms have yet to be disclosed, hence systematic feedback from market institutions is naturally lacking a point of reference.
For the industry, this means that the current discussions focus more on the “shadow rules”: the direction is clear—regulatory reconstruction surrounding client-held digital assets—but specific boundaries and details may shift anytime under OMB opinions and public comments. At this early review stage, institutions cannot pretend nothing has happened, nor can they treat the yet-to-be-formed terms as firm constraints. On one hand, they need to sort out their custodial chains, identifying which product structures may be exposed to compliance adjustment pressures if future definitions of “qualified custodians” tighten or if higher demands for multi-layer outsourcing custodianship or technology services arise; on the other hand, they must restrain the impulse to “lock down” complex structures prematurely, avoiding making irreversible arrangements before the rules are finalized. Amid the double uncertainty of legislative market structure still stuck in the Senate and regulatory rules undergoing review and discussion, the real execution risk lies in institutions having to take a bet on their custodial models and compliance paths before the rules take shape.
With the Push for Digital Euro, Custody and Privacy Become Global Regulatory Battlefields
As U.S. institutions wager their paths amid undefined custodial rules, Europe has chosen to first define the “board” through legislation. In July 2025, the European Parliament passed key frameworks related to the digital euro, incorporating the technical routes and compliance responsibilities of this central bank digital currency into regulatory texts, with boundaries determined by legislators rather than a single regulatory agency. Subsequently, Piero Cipollone, a member of the ECB Executive Board, emphasized that the digital euro will provide the highest possible level of privacy under existing technical conditions, but specific distribution and anti-money laundering obligations will still rest with commercial banks. This means that within the EU framework, the design of custody and account-level privacy is bundled together with bank regulation and anti-money laundering scrutiny as a whole, where financial institutions are not just technical interfaces but also explicitly written into the law as front-line “gatekeepers.”
In contrast, the U.S. is still advancing its digital asset regulatory framework through the SEC’s custodial rule revisions rather than waiting for a complete new federal legislation to materialize. The pathway of the digital euro is first having regulations established, which are then followed by the central bank and commercial banks designing products and custodial models beneath them; whereas in the U.S., Congressional market structure legislation is stuck in the Senate while the SEC seeks to fill compliance gaps via custodial rule proposals, later having the industry reconstruct business operations based on regulatory texts. Both pathways point toward a tightening trend: whether directly defined by legislation regarding the privacy boundaries of digital currencies, custodial responsibilities, and anti-money laundering obligations, or by regulatory rules clarifying compliance conditions for crypto asset custody, custodial actions are being seen as intersections of data, identity, and capital flows, becoming the core battleground for global regulation simultaneous addressing privacy protection and anti-money laundering penetration.
After Redrawing Custodial Boundaries, How Will Platforms and Users Position Themselves?
By sending the custodial rules for review to the OMB, the SEC essentially wants to redraw the lines between investment advisers, funds, and custodial institutions: who is responsible for safekeeping, who is responsible for bookkeeping, and who bears technical and anti-money laundering obligations will all be more precisely laid out in the regulatory texts. The proposal aims to modernize custodial requirements and provide clearer frameworks for holding digital assets, suggesting that the traditional “adviser + single custodian” model is likely to evolve into a multi-party structure of “adviser + professional custodian + technology and compliance service providers,” prompting investment advisers and fund managers to pre-clarify their responsibilities within the custodial chain and prepare for future due diligence, service outsourcing, and fee structure restructuring. Trading platforms, custodial institutions, and traditional financial institutions will also be forced to adjust their roles in client-held coins and bookkeeping models: platforms need to consider whether to continue bearing responsibility from trading facilitation to underlying custody or choose to step back to being a “front-end entry,” delegating on-chain custody and identity verification to licensed custodians and compliance service providers; conversely, technology-driven compliance service providers will have opportunities to undertake monitoring of addresses, layered asset bookkeeping, reporting interfaces, and other "invisible infrastructure" under the new framework, becoming key hubs between advisers and custodians. For end-users, in the short term, regulation remains within procedural stages of OMB review, SEC commissioner voting, and public opinion periods, and custodial solutions will not be deemed illegal overnight, but the account structures, asset ownership proofs, and service contract terms face high probabilities of being standardized; thus, making advance selections for products adaptable to multi-party custodianship, transparent reporting, and cross-agency collaboration is a practical choice to create a buffer before rules are fully implemented. Ultimately, what will truly shape the effects of redrawing the custodial landscape will not be a specific technical detail, but whether institutions and users can continuously track key nodes and proactively adjust their roles and compliance capabilities according to the strictest regulatory expectations amid uncertain review and voting pathways.
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