SEC Crypto Custody Framework Nears Proposal as Agency Maps Regulated Path for Digital Assets

What to Know

• The SEC is preparing a crypto custody proposal that would cover investment firms and broker-dealers.
• The proposal is under White House review before it can be formally issued for public comment.
• Taylor Lindman, chief counsel of the SEC’s Crypto Task Force, said the agency wants existing securities intermediaries to become more comfortable using blockchain and holding or transacting crypto assets.
• The coming framework is intended to clarify how broker-dealers may carry non-security crypto assets without needing a special registration.
• The custody effort also aims to give investment advisers more clarity on where client crypto assets may be held, including with state-chartered trusts.
• The SEC staff issued an interim statement in December to guide broker-dealers on crypto custody while formal rules are still pending.
• The agency also moved in September 2025 to allow investment advisers to hold customer assets with state-chartered trusts as qualified crypto custodians.
• A prior custody rule effort from 2023 did not reach final form and was scrapped after President Donald Trump returned to the White House and appointed more crypto-friendly leadership at the SEC.
• The custody proposal fits into a wider SEC crypto agenda that includes a proposed rule for crypto offerings and an exemption designed to support tokenized securities.

SEC Pushes Crypto Custody Toward the Regulated Mainstream

The U.S. Securities and Exchange Commission is moving closer to a formal crypto custody proposal as the agency seeks to define how digital assets can be held within established securities market structures. The effort is being led through the SEC’s Crypto Task Force, with chief counsel Taylor Lindman describing the work as part of a broader attempt to make blockchain technology and crypto assets more familiar to regulated intermediaries.

The proposal, which is currently under review at the White House’s Office of Management and Budget, would address custody practices for both investment firms and broker-dealers. Once that review is complete, the SEC would be able to formally propose the rule and open it for comments from the industry and the public. That process would give market participants a chance to weigh in on how the custody framework should work in practice before any final rule is adopted.

For the crypto sector, custody rules are a central piece of the regulatory puzzle. Custody determines who may hold client assets, under what standards, with what safeguards, and inside which regulated structures. In traditional finance, custody is a core part of investor protection. In crypto, the same issue has proven more complicated because digital assets can be transferred directly on blockchain networks, held through private keys, or maintained through specialized custodial platforms that do not always fit neatly into existing securities law categories.

Broker-Dealers and Non-Security Crypto Assets

One of the major goals of the pending proposal is to help the market understand how a broker-dealer can carry a non-security crypto asset without needing a special registration. That point is significant because the SEC has long drawn distinctions between crypto assets that may be securities and those that are not. Market participants have also pushed for clearer rules that allow regulated firms to handle digital assets without facing uncertain compliance obligations.

Lindman framed the effort as an attempt to bring existing securities intermediaries into a market where blockchain activity is no longer treated as unusually separate from the rest of finance. She said the agency is trying to assimilate existing securities intermediaries and market participants into a world where they feel comfortable using blockchain, holding crypto assets, and transacting crypto assets. That includes assets that are securities as well as assets that are not securities.

The language points to a shift in regulatory tone. Rather than treating crypto custody as something that must sit entirely outside traditional market plumbing, the SEC is examining how existing firms can participate under rules that are recognizable, enforceable, and capable of supporting investor protection. For broker-dealers, that could eventually mean more defined operational pathways for handling certain crypto assets without seeking unusual or bespoke approvals.

Investment Advisers and Qualified Custody

The custody proposal is also expected to address investment advisers and the question of where client crypto assets can be held. Lindman pointed to the idea that advisers need clarity on whether client assets can be parked with entities such as state-chartered trusts. This is a practical issue for advisory firms that want exposure to digital assets while still meeting their legal obligations to safeguard client property.

The SEC has already taken interim steps in this direction. In September 2025, the agency moved to allow investment advisers to hold customer assets with state-chartered trusts as qualified crypto custodians. That action signaled an effort to provide a more workable framework for advisers while the broader custody rule remains in development.

The agency’s staff also issued a statement in December intended to guide broker-dealers on how to approach crypto custody before final rules are in place. Such staff statements do not replace formal rulemaking, but they can give regulated firms a clearer sense of how SEC staff views compliance questions during periods of transition. For crypto firms and traditional financial institutions alike, interim guidance can reduce uncertainty while more permanent rules are being drafted and debated.

A Different Direction From the 2023 Custody Effort

The current approach marks a notable departure from the SEC’s earlier custody effort in 2023. Under then-Chair Gary Gensler, the agency pursued a custody rule in a markedly different regulatory environment. At the time, Gensler said crypto firms themselves would not qualify to custody the assets. That proposed rule never moved into final form.

The prior effort was later scrapped after President Donald Trump returned to the White House and appointed more crypto-friendly leadership at the regulator. Since then, the SEC’s crypto agenda has shifted toward building rules that can place crypto activity more explicitly inside regulated market channels. The custody proposal is one of the most important examples of that broader change.

For market participants, the difference matters because custody is not only a technical back-office issue. It shapes who can participate in the market, which firms can serve institutional clients, how advisers can allocate to crypto, and whether regulated intermediaries can offer digital asset services without risking enforcement uncertainty. A workable custody framework could therefore affect both traditional financial firms entering crypto and crypto-native firms seeking to operate within regulated structures.

Part of a Wider SEC Crypto Agenda

The custody proposal is only one part of the SEC’s broader digital asset agenda. The agency has also advanced a proposed rule that would allow crypto offerings and an exemption intended to clear a path for tokenized securities. Together, these initiatives suggest that the regulator is attempting to lay a foundation for market activity that uses blockchain while still fitting into securities oversight.

Lindman described parts of the work as foundation laying and noted that some of it is boring. In regulatory terms, that description is important. The most consequential market changes often depend on technical legal definitions, compliance obligations, custody standards, recordkeeping expectations, and the classification of intermediaries. These details may lack the public drama of enforcement actions, but they determine whether a market can operate at scale inside a regulated system.

The SEC is also acting while Congress has not yet delivered a comprehensive crypto framework. In the absence of a legislative solution, agencies continue to shape the market through rulemaking, guidance, exemptions, and supervisory expectations. That creates pressure for regulators to provide clarity, but it also leaves open questions about how durable agency-led frameworks will be if future legislation takes a different approach.

Why Custody Rules Matter for Crypto Markets

Custody is one of the foundational questions in crypto because control over private keys can mean control over assets. In traditional finance, client assets are generally held through regulated custodians and intermediaries, with defined legal duties and operational controls. In crypto, assets may be stored through wallets, exchanges, trusts, broker-dealers, or specialized custodial arrangements. The legal and operational standards can vary depending on the asset, the firm, and the client relationship.

Clearer custody rules could help bridge that gap. If broker-dealers and advisers know what structures the SEC considers acceptable, they may be more willing to build or expand crypto-related services. That could bring more institutional participation into the market, though the effect would depend on the final wording of the rule, the compliance burden, and how the agency treats different categories of crypto assets.

At the same time, the proposal is not yet final. The market still needs to see the formal text after White House review, and the public comment process could influence the final direction. Technical traders, compliance officers, crypto firms, advisers, and traditional broker-dealers will all be watching for details on asset segregation, qualified custodians, capital treatment, recordkeeping, and the handling of assets that fall outside securities classifications.

Market Impact Hinges on the Final Proposal

The immediate market impact of the custody effort is likely to depend on how flexible the proposal appears once released. A framework that clearly allows regulated intermediaries to hold and transact certain crypto assets could be viewed as supportive for institutional adoption. A more restrictive version could disappoint firms looking for operational clarity and broader permissions.

For now, the key development is that the SEC is moving toward formal rulemaking rather than relying only on enforcement or informal guidance. That shift may be welcomed by firms that have argued for clearer rules of the road. Still, public comments, legal interpretation, and future agency action will determine whether the custody framework becomes a practical bridge between crypto markets and the regulated securities industry.

The broader message from the SEC’s current agenda is that digital assets are being pulled into more conventional regulatory categories. Stablecoins, non-security crypto assets, tokenized securities, broker-dealer activity, and investment adviser custody are all being considered as parts of a larger structure. The agency’s challenge is to meet the market where it is while preserving the investor protection standards that define U.S. securities regulation.

Frequently Asked Questions (FAQs)

What is the SEC’s coming crypto custody proposal about?

The proposal is expected to address how investment firms and broker-dealers can hold or manage crypto assets within regulated market structures. It is intended to clarify custody obligations and help firms understand how digital assets can fit into existing securities rules.

Who is Taylor Lindman?

Taylor Lindman is the chief counsel of the SEC’s Crypto Task Force. She has outlined the agency’s work on crypto custody, tokenization, crypto offerings, and the broader effort to make regulated firms more comfortable with blockchain-based assets.

Why is the White House involved before the SEC proposal is released?

The custody proposal is under review at the Office of Management and Budget. After that review is cleared, the SEC can formally publish the proposal and seek comments from the industry and the public.

How could the proposal affect broker-dealers?

The proposal is intended to clarify how broker-dealers may carry non-security crypto assets without needing special registration. The final details will matter because broker-dealers need clear compliance standards before expanding crypto asset services.

How could the proposal affect investment advisers?

Investment advisers may receive more clarity on where client crypto assets can be held. The SEC has already moved in September 2025 to allow advisers to hold customer assets with state-chartered trusts as qualified crypto custodians.

What interim guidance has the SEC already provided?

The SEC staff issued a statement in December to guide broker-dealers on crypto custody while formal rules are still pending. That interim approach is meant to help firms navigate custody questions before a final rule is established.

How does this differ from the SEC’s 2023 custody effort?

The 2023 custody effort took place under a different SEC leadership approach and did not reach final form. That earlier effort was scrapped after President Donald Trump returned to the White House and appointed more crypto-friendly leadership at the regulator.

Is the custody rule final yet?

No. The proposal is still under White House review and has not yet entered the formal public comment stage. The final rule, if adopted, could differ from the proposal after comments and further agency review.

Why does crypto custody matter for investors?

Custody determines how client assets are held, protected, and controlled. In crypto markets, where blockchain transfers and private key management are central, clear custody standards can play a major role in investor protection and institutional participation.