The Securities and Exchange Commission is poised to abandon a controversial crypto custody rule proposed under former Chair Gary Gensler’s watch. Introduced in February 2023, the rule would have required investment advisers to hold clients’ crypto assets with qualified custodians. Now it’s on the chopping block.
Acting Chair Mark Uyeda has directed staff to work with the agency’s crypto task force on alternatives. About time. The original proposal faced massive pushback from practically everyone who would’ve had to deal with it.
Critics blasted the rule’s broad scope and warned there might not be enough qualified custodians to handle the load. Banks weren’t thrilled either, claiming it would hurt their business. The rule would have significantly disrupted decentralized finance systems that typically give users direct control of their assets. Uyeda made this announcement during a San Diego conference where he addressed industry concerns directly. Investment advisers complained about compliance nightmares. The whole thing was a mess, really.
The proposal faced universal scorn, with everyone from banks to advisers warning it would create an unworkable regulatory nightmare.
This potential reversal marks a significant shift in the regulatory landscape under the Trump administration. The SEC has already backed off other crypto crackdowns, rescinding controversial accounting guidance and dropping enforcement actions against major players. They’ve even set up a dedicated crypto task force and made statements about meme coins. Wild times.
The political winds have changed dramatically. Trump’s nominee for SEC chair, Paul Atkins, faces a Senate hearing on March 27. Congressional Republicans hated the original rule, and industry groups lobbied hard against it. The proposal drew significant criticism from a coalition of banking associations who emphasized it would have material impacts on their operations. Gensler’s tough-on-crypto approach is officially out of fashion.
For investment advisers and crypto enthusiasts, this is fantastic news. Banks might actually start working with crypto companies again instead of running for the hills. Innovation could get a boost. The industry has been begging for breathing room.
What happens next? SEC staff will consider alternatives while the crypto task force holds its first roundtable. The rule might be withdrawn entirely or completely reworked. Industry players are watching closely, waiting to see what other Gensler-era policies might get the axe. The regulatory pendulum swings again.
