SEC considers dropping crypto custody rule

A proposed rule that would have strengthened crypto custody requirements for investment advisers is being considered for withdrawal by the U.S. Securities and Exchange Commission (SEC).

This decision comes after significant pushback from industry stakeholders and SEC officials, including Acting Chairman Mark Uyeda, who expressed concerns over the rule's broad scope.

The rule, introduced in February 2023 under the Biden administration, aimed to expand custody requirements to include all client assets, including cryptocurrencies.

It would have required investment advisers to store clients' crypto assets with qualified custodians, such as federal or state-chartered banks and broker-dealers.

However, critics argued that this would limit access to custody services and potentially harm the crypto industry.

Acting Chairman Uyeda has directed SEC staff to explore alternatives, including withdrawing the rule entirely, citing the challenges posed by its original proposal.

Commissioner Hester Peirce, who voted against the rule, noted that it could shrink the number of qualified crypto custodians, further complicating the situation for investment advisers.

This move reflects a broader shift in the SEC's approach to cryptocurrency regulation, with the agency reconsidering several policies introduced during the Biden administration.

"Given such concern, there may be significant challenges to proceeding with the original proposal," Uyeda stated, indicating a willingness to adapt regulatory frameworks to better suit the evolving crypto landscape.

The potential withdrawal of this rule could have significant implications for the crypto industry, potentially easing regulatory burdens on investment advisers and crypto platforms.

However, any changes would need to be deliberated and voted on by the full SEC Commission, involving further industry engagement and potential revisions.