SEC considers reversal on crypto custody rule amid industry concerns
SEC reevaluates crypto custody proposal
In a notable departure from earlier regulatory moves, the U.S. Securities and Exchange Commission is reconsidering a proposal to tighten rules on cryptocurrency custody.
Acting Chair Mark Uyeda announced the decision on Monday, pointing to substantial industry concerns about a rule introduced in February 2023. This marks the second time in a month that Uyeda has requested SEC staff revisit proposed regulations, reflecting the agency’s changing stance under the Trump administration, reports The Block.
A shift in regulatory focus
Originally drafted under the previous administration, the custody rule would require registered investment advisers to hold client assets, including cryptocurrencies, with a qualified custodian, such as a bank or broker-dealer. The proposal aimed to expand the existing custody rule to cover all assets, not just traditional financial instruments. However, it provoked pushback from both crypto firms and conventional financial institutions. Critics argued that, by broadening custodial requirements, the rule might dissuade banks from dealing with cryptocurrency clients, potentially limiting industry growth. Uyeda’s remarks underscored the SEC’s willingness to consider alternatives. He highlighted the possibility of withdrawing or re-proposing the rule and, if necessary, postponing compliance deadlines. Notably, Uyeda also directed staff to coordinate with the agency’s recently formed crypto task force, an entity tasked with clarifying policy on digital assets, including stablecoins and decentralized finance.
Broader implications for the crypto industry
This policy reassessment illustrates how the SEC is adapting to a more crypto-friendly environment since the Trump administration took office. Over the past few weeks, the agency has dropped several enforcement actions, rescinded contentious accounting guidance, and launched a statement on memecoins. As industry stakeholders monitor the SEC’s evolving posture, the question remains whether these revised rules will strike a balance between protecting investors and allowing the crypto sector to innovate. In the near term, the crypto task force’s upcoming roundtable on “defining security status” is expected to provide further insight into the SEC’s regulatory direction. Should the commission ultimately relax or modify the custody proposal, it could open the door to broader institutional adoption and fresh capital inflows for digital assets.
