The U.S. Securities and Exchange Commission (SEC) may withdraw a proposed rule to tighten crypto custody requirements for investment advisers. Acting SEC Chair Mark Uyeda indicated that the original proposal, made under the Biden administration in February 2023, could significantly change or be scrapped altogether.
Concerns Over the Proposed Rule
In a recent speech at an investment industry conference in San Diego on March 17, 2025, Uyeda noted that the SEC had received numerous concerns regarding the broad scope of the proposed crypto custody rule, intended to enhance custodial requirements for all assets managed by investment advisers, specifically focusing on crypto assets.
Uyeda stated that feedback from commenters raised significant concerns about the rule’s scope, prompting the SEC to explore alternatives, including possibly withdrawing the proposal. “Given such concern, there may be significant challenges to proceeding with the original proposal,” he expressed. He instructed SEC staff to collaborate with the crypto task force to consider other potential actions.
Background of the Custody Rule Proposal
Proposed during Gary Gensler’s tenure as SEC chair, the crypto custody rule aimed to ensure that investment advisers store clients’ crypto assets with qualified custodians. Gensler asserted that advisers could not depend on crypto platforms as qualified custodians due to their operational practices, as the proposal sought to better protect clients’ crypto holdings.
However, resistance within the SEC emerged, with both Uyeda and SEC Commissioner Hester Peirce publicly opposing the rule. Uyeda argued that the rule’s broad application could impede advisers from effectively managing client funds in the crypto space.
Commissioner Peirce, the only SEC commissioner to vote against the rule, warned of unintended consequences, stating it could reduce the number of qualified custodians for crypto assets, thereby affecting the ecosystem negatively.
Shift in SEC Leadership and Potential Withdrawal of Crypto Custody Rule
Changes in SEC leadership have impacted the agency’s approach to crypto regulation. Uyeda, acting SEC chair since January 2025, has adopted a more cautious stance compared to Gensler’s aggressive regulatory approach.
Uyeda has reversed several regulatory actions initiated under Gensler, including lawsuits and investigations against companies such as Coinbase, Uniswap, and OpenSea. He is also exploring alternatives to some of Gensler’s controversial proposals, including those regarding crypto exchanges and custodians.
The potential withdrawal of the crypto custody rule reflects the SEC’s ongoing reevaluation of its crypto regulatory stance, taking industry concerns into account. While it remains unclear if the rule will be fully withdrawn, SEC leadership is evidently considering feedback from stakeholders.
Additionally, on March 10, 2025, Uyeda noted that SEC staff are reviewing another proposal requiring some crypto firms to register as exchanges.
Paul Atkins: The New SEC Chair Nominee
In another development, Paul Atkins, President Donald Trump’s nominee for SEC chair, is proceeding toward officially taking over the role. His confirmation has faced delays over financial disclosure issues related to his marriage to a billionaire family.
The White House’s submission of necessary documents to the Senate is still unconfirmed. However, Senate Banking, Housing, and Urban Affairs Committee Chair Tim Scott plans a hearing on Atkins’ nomination on March 27, according to a March 17 update by Semafor’s Eleanor Mueller.
Atkins’ nomination has drawn attention due to his more hands-off regulatory style, expected to introduce a more collaborative approach compared to Gensler’s methods. His confirmation could further influence the SEC’s stance on crypto regulation amid policy adjustments under Uyeda’s leadership.
Looking Ahead: The SEC’s Crypto Task Force
With the current SEC leadership, a new crypto task force has been formed to address regulatory concerns surrounding the digital asset market, headed by Commissioner Hester Peirce. It is expected to play a crucial role in shaping SEC policies on cryptocurrency and blockchain technology, emphasizing regulatory frameworks that balance innovation with investor protection.
Despite the potential withdrawal of the custody rule, a major shift in the SEC’s approach to crypto regulation seems unlikely in the short term. The SEC remains dedicated to regulating crypto markets and ensuring compliance with U.S. securities laws, continually grappling with balancing regulation with the needs of the rapidly evolving crypto market.
Ultimately, the future of crypto custody regulations remains uncertain as the SEC reassesses its stance, highlighting the agency’s responsiveness to industry feedback and commitment to exploring alternatives. The confirmation of Paul Atkins as SEC chair could lead to more flexible and collaborative policies in the future.
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