SEC signals possible changes to crypto custody rule

The U.S. Securities and Exchange Commission (SEC) may revise or abandon a controversial crypto custody rule proposed under former chair Gary Gensler.

Acting SEC Chair Mark Uyeda acknowledged concerns over the rule's broad scope during a March 17 investment conference in San Diego, signaling a potential shift in regulatory direction.

The rule, introduced two years ago, sought to expand custody requirements for investment advisers to include crypto assets.

It mandated that client assets be held with "qualified custodians," such as federally or state-chartered banks.

Critics argued that the rule imposed excessive compliance burdens and could discourage investment in crypto assets.

Uyeda stated that the SEC staff has been directed to collaborate with the agency’s crypto task force to explore alternatives, including withdrawing the proposal entirely.

“Given such concern, there may be significant challenges to proceeding with the original proposal,” he said.

This marks a departure from Gensler’s stringent regulatory approach, which had drawn criticism for targeting crypto firms through enforcement actions.

Under President Donald Trump’s administration, the SEC has adopted a more collaborative stance toward the crypto industry, including dropping lawsuits against major firms like Binance and Coinbase.

The SEC is also reconsidering other policies from Gensler's tenure, such as redefining "exchanges" to include crypto platforms.

Uyeda emphasised that these changes aim to balance regulatory oversight with fostering innovation in digital assets.

Commissioner Hester Peirce, known for her pro-crypto stance, leads the SEC’s dedicated crypto task force.

The task force plans to engage with industry stakeholders through initiatives like its upcoming roundtable on defining security status for digital assets.

As the SEC rethinks its approach, the potential revisions to the custody rule reflect broader efforts to align regulation with the evolving digital asset landscape while addressing industry concerns about overreach and compliance challenges.