After months of industry pushback and a complete leadership overhaul at the Securities and Exchange Commission, a controversial rule that would drastically change how investment advisers handle crypto assets appears headed for the chopping block.
The SEC’s crypto custody rule faces extinction after industry resistance and new leadership signal a regulatory about-face.
The rule, proposed in February 2023 under then-Chair Gary Gensler’s watch, would have forced investment advisers to store clients’ crypto with “qualified custodians”—a requirement many in the industry called excessive and impractical. No surprise, crypto firms hated it. Traditional banks weren’t fans either.
Acting SEC Chair Mark Uyeda recently acknowledged the proposal’s deep flaws at an Investment Company Institute conference. He’s directed staff to work with the agency’s new crypto task force on alternatives. Translation: the original rule is probably dead.
This represents a dramatic shift in the SEC’s approach to crypto regulation. The Trump administration isn’t wasting time dismantling Biden-era crypto policies. They’ve already rescinded controversial accounting guidance and dropped enforcement actions against major players in the space.
For investment advisers who’ve been sitting on their hands waiting for regulatory clarity, this potential about-face creates both relief and confusion. The stringent qualified custodian mandate may disappear, but what replaces it remains anyone’s guess.
The crypto task force is now exploring various alternatives. These could include narrowing the scope of requirements, creating exemptions for certain digital assets, or even considering blockchain-specific custody solutions. Self-custody with enhanced controls is apparently on the table too.
Congressional Republicans, who pushed back against the original proposal, will likely celebrate this development. The American Bankers Association, which warned the rule would harm business, might finally exhale. The organization had previously expressed concerns that the original plan would result in limited banking options for cryptocurrency firms.
A coalition of banking associations had also highlighted that the proposal would have material business impacts on traditional financial institutions engaging with the crypto sector.
What happens next? SEC staff are reviewing public comments while the crypto task force prepares for a roundtable on defining security status. A formal announcement on the rule’s fate should follow, though no one knows exactly when.
Funny how quickly regulatory winds change in Washington. Yesterday’s urgent investor protection measure is today’s regulatory overreach. The crypto world keeps spinning.
