SEC May Scrap Biden-Era Crypto Custody Rule, Says Acting Chair Uyeda

The U.S. SEC may withdraw or revise a controversial crypto custody rule proposed under the Biden administration, according to acting chair Mark Uyeda. Speaking at an investment industry conference in San Diego on March 17, Uyeda acknowledged mounting concerns from industry participants regarding the rule’s “broad scope” and its potential to stifle crypto investment.

“Given such concern, there may be significant challenges to proceeding with the original proposal,” Uyeda stated. “As such, I have asked the SEC staff to work closely with the crypto task force to consider appropriate alternatives, including its withdrawal.”

The rule, introduced in February 2023 under former SEC chair Gary Gensler, sought to tighten crypto custody standards for investment advisers. It required advisers to use qualified custodians for all client assets, including cryptocurrencies. However, Gensler argued that crypto platforms were unfit to serve as qualified custodians due to their operational practices.

Pushback From Commissioners and Industry Players

The proposal drew sharp criticism from SEC commissioners and industry advocacy groups. Uyeda himself had previously questioned its feasibility, stating that it could effectively discourage investment advisers from offering crypto services altogether.

“How could an adviser seeking to comply with this rule possibly invest client funds in crypto assets after reading this release?” Uyeda asked at the time.

Despite his reservations, he initially supported the proposal but disagreed with “a number of provisions.” However, Commissioner Hester Peirce was the only member of the five-person commission to vote against the rule. She warned that it would reduce the number of qualified crypto custodians and create regulatory barriers that could drive firms out of the U.S. market.

The industry also pushed back, with advocacy groups calling the rule unlawful and damaging to crypto innovation.

Trump-Era SEC Signals Softer Crypto Stance

Uyeda’s remarks are part of a broader policy shift under the Trump-era SEC, which has already rolled back several Gensler-led crypto measures. On March 10, Uyeda revealed that he had asked SEC staff to explore options to abandon another rule that would require some crypto firms to register as exchanges.

In December, Donald Trump nominated former SEC Commissioner Paul Atkins to replace Uyeda as chair. With a Senate hearing reportedly set for March 27, the commission’s crypto policies could face further shake-ups, potentially marking a friendlier regulatory environment for the industry.

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