SEC pushes ahead with digital asset custody rules reform and plans to clarify the crypto asset custody framework for investment advisors and investment companies

The Zhitong Finance App learned that the US Securities and Exchange Commission (SEC) is advancing a new round of reform of digital asset custody rules. The SEC has submitted a proposal for new rules involving investment advisors and investment companies to trust crypto assets for clients to the White House for review. The aim is to further clarify the regulatory framework applicable to financial institutions when holding clients' digital assets, and to remove some of the old escrow requirements that are no longer in line with current market practices.

According to information published on the US government website, the SEC submitted this proposed rule to the White House Office of Management and Budget (OMB) for review on August 25. This development shows that financial regulators are continuing to push the Trump administration's cryptocurrency policy agenda while the US Senate's legislation surrounding the structure of the cryptocurrency market has yet to achieve a final breakthrough.

According to the list of future SEC rules published by the federal government, the main goal of this proposed rule is to “clarify the regulatory framework for investment advisors and investment companies to manage crypto assets.”

In recent years, as digital assets such as Bitcoin and Ethereum have gradually entered traditional portfolios, investment companies and investment advisors are facing an important compliance issue, namely how to hold crypto assets on behalf of clients without violating the SEC's existing asset custody regulations.

The SEC said that this rule adjustment is aimed at responding to questions raised by investment companies and investment advisors in this field and establishing a more clear regulatory path for digital asset custody. If the new rules are finally implemented, they are expected to reduce some of the regulatory uncertainties that traditional financial institutions face when entering the crypto asset market.

In addition to establishing a more clear digital asset custody framework, the SEC is also planning to eliminate some of the current escrow requirements. The SEC believes that with the continuous development of the financial market and changes in securities transactions and asset holding methods, some of the existing escrow regulations have become “outdated” and no longer fully match the actual operating model of the current market.

Therefore, this reform does not simply add new regulatory requirements for cryptocurrencies, but also hopes to modernize traditional assets and digital asset custody systems at the same time. The SEC said the proposal was also part of Chairman Atkins pushing the US securities regulatory framework into a modern era.

Currently, the specific provisions of the new rules have not been officially announced to the public.

The White House Office of Management and Budget needs to first complete a review of the SEC proposal and may propose amendments during the review process. Thereafter, the proposal will be sent back to the SEC.

Following normal procedure, the SEC commissioner will then vote on the proposal. Currently, the SEC Committee consists of three Republican members. If approved, the full text of the rules will only be officially released to the public.

Thereafter, the SEC usually provides a public comment period of at least 60 days to allow financial institutions, investment advisors, cryptocurrency companies, and other market participants to submit feedback.

After reviewing public comments and making adjustments to the rules, the SEC will need to vote again on the final version before the rules can officially take effect.

At the time the proposed rules were introduced, reforms surrounding the digital asset regulatory system in the US were still progressing.

Currently, the US Senate's market structure legislation on how to divide responsibilities for cryptocurrency market supervision is still in the discussion stage, but financial regulators such as the SEC have begun to push for some reforms through the existing administrative supervision system.

For traditional financial institutions, digital asset custody rules have always been one of the key compliance issues entering the cryptocurrency market. If the SEC finally clarifies which institutions can host digital assets, what conditions investment advisors need to meet, and how existing escrow regulations apply to crypto assets, it will help reduce regulatory uncertainty in related businesses.

Overall, the SEC's submission of a digital asset custody rule proposal to the White House means that the US is further promoting the connection between crypto assets and traditional financial supervision systems. However, since the proposal is still under review by the White House, the specific rules and possible impact on investment advisors, asset managers, and cryptocurrency custodians will have to wait until the full text is published before further finalization.