TLDR
- Acting SEC Chair Mark Uyeda has directed staff to consider withdrawing a proposed crypto custody rule from 2023
- The rule would require investment advisers to custody client crypto with qualified custodians
- Industry commenters expressed “significant concern” over the proposal’s broad scope
- This marks the second recent instance of the SEC reconsidering Trump-era crypto regulations
- The move signals a continuing shift in the SEC’s approach to crypto under the Trump administration
Acting Securities and Exchange Commission (SEC) Chair Mark Uyeda has asked his staff to consider withdrawing a proposed rule that would tighten crypto custody standards for investment advisers. This move represents another step in the agency’s changing approach to cryptocurrency regulation under the Trump administration.
The rule in question was introduced in February 2023 during Gary Gensler’s tenure as SEC chair. It aimed to expand custody rules for investment advisers to include all client assets, including cryptocurrencies.
Under the proposal, investment advisers would be required to custody their clients’ crypto with a qualified custodian. These qualified custodians typically include federal or state-chartered banks and broker-dealers.
Gensler had stated that investment advisers “cannot rely on” crypto platforms as qualified custodians due to their operational methods. This stance caused friction within the industry and among some SEC commissioners.
In his speech at an investment industry conference in San Diego on March 17, Uyeda acknowledged the pushback. He noted that commenters had expressed “concern” over the “broad scope” of the proposal.
“Given such concern, there may be challenges to proceeding with the original proposal,” Uyeda said during his remarks. “I have asked the SEC staff to work closely with the crypto task force to consider appropriate alternatives, including its withdrawal.”
Industry Reaction and Regulatory Shift
When the rule was first proposed, it faced criticism from both within and outside the SEC. Commissioner Hester Peirce, known as “Crypto Mom” for her pro-industry stance, was the only commissioner to vote against the rule.
Peirce argued that the proposed rule “would expand the reach of the custody requirements to crypto assets while likely shrinking the ranks of qualified crypto custodians.” This concern was echoed by industry advocacy groups.
Even Uyeda himself had reservations at the time. He questioned how advisers could comply with the rule while still investing client funds in crypto assets.
Acting Chairman Mark T. Uyeda delivered keynote remarks at ICI’s Investment Management Conference today. https://t.co/W6sYt92mGb pic.twitter.com/zBdKIJNHNF
— U.S. Securities and Exchange Commission (@SECGov) March 17, 2025
The banking industry also voiced concerns. A coalition of bank and financial industry associations, including the American Bankers Association, warned that the proposal “could have a material impact on their business.”
This marks the second time this month that Uyeda has directed SEC staff to reconsider rules proposed under the previous administration. Just days earlier, on March 10, he asked for options on “abandoning” parts of a proposal that would push some crypto firms to register as exchanges.
These actions reflect a broader shift in the SEC’s approach to cryptocurrency regulation under the Trump administration. The agency has moved away from Gensler’s strict stance, which held that most cryptocurrencies besides Bitcoin were securities.
In recent weeks, the SEC has rapidly changed course on several key crypto policies. It has rescinded controversial crypto accounting guidance known as SAB 121, which required firms holding crypto assets to record them as liabilities on their balance sheets.
The agency has also dropped enforcement actions against major crypto industry players, including Binance, Kraken, and Coinbase. These cases had created legal battles and uncertainty for the industry over the past few years.
Another key initiative under the Trump administration is the formation of a dedicated crypto task force led by Commissioner Peirce. The task force is designed to work closely with the crypto industry to develop more practical regulations.
The task force is scheduled to hold its first roundtable, titled “How We Got Here and How We Get Out – Defining Security Status,” this Friday. This event may provide further insights into the SEC’s evolving approach to crypto regulation.
President Donald Trump has nominated former SEC Commissioner Paul Atkins to replace Uyeda as the permanent chair of the agency. A Senate hearing for Atkins is reportedly scheduled for March 27.
The potential withdrawal of the crypto custody rule would be welcome news for investment advisers and the broader crypto industry. Many had worried that the rule would limit the number of banks willing to do business with the sector.
Congressional Republicans had joined crypto firms and traditional finance companies in pushing back against the rule when it was first proposed. They argued that the requirements were too strict and would hamper innovation in the sector.
Uyeda’s speech on Monday focused primarily on the SEC’s rulemaking process. He discussed potentially withdrawing or re-proposing rules, as well as delaying compliance dates for certain regulations.
This approach contrasts sharply with the regulatory direction under Gensler, whose tenure was marked by strict crypto oversight. Gensler’s resignation before Trump took office marked a turning point in the SEC’s regulatory direction.
As the SEC continues to revise its approach to crypto regulation, industry participants are watching closely to see which other Gensler-era policies might be reconsidered or reversed.
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