SEC Seeks Broad Overhaul of Crypto Custody Rules

The U.S. Securities and Exchange Commission is moving to modernize cryptocurrency custody rules for investment advisers, asset managers and other firms.

Bloomberg reported on August 26 that the SEC submitted a proposal to the White House Office of Management and Budget on August 25 to revamp the regulatory framework for investment firms that hold clients' cryptocurrency.

The core of the proposal is to clarify the standards that apply when investment advisers and other firms hold cryptocurrency for clients or funds.

Industry participants have long argued that it was unclear which custody arrangements would comply with the SEC's rules.

The SEC is also considering eliminating some existing custody requirements that have become less necessary as markets have evolved and the way securities are traded and held has changed. The effort is intended to streamline outdated provisions that are not needed for investor protection and reduce the industry's regulatory burden.

The overhaul is part of SEC Chair Paul Atkins's broader push to modernize financial regulation. With the U.S. Senate repeatedly stalling on the crypto market structure bill, known as the Clarity Act, the report said regulators have moved to improve the framework through administrative action.

The specific revisions have not been disclosed. The proposal could still be revised after the Office of Management and Budget completes its review.