The U.S. Securities and Exchange Commission (SEC) is reevaluating a proposed regulation that would enforce stricter custody requirements for investment advisers managing cryptocurrencies and other assets.
During the “Investment Management Conference” in San Diego, Acting SEC Chair Mark Uyeda indicated that the agency is contemplating potential amendments or the total withdrawal of the rule introduced in the previous administration.
Reassessment of the Custody Rule
Originally endorsed by former SEC chair Gary Gensler, the intended regulation aimed to bolster investor protections by ensuring that investment advisers properly secure client assets.
Among its provisions was a proposal to restrict qualified custodians to federally chartered institutions. At the time, Gensler stressed the necessity of preventing misuse or loss of assets.
However, Uyeda brought attention to public feedback that criticized the rule’s extensive scope, which has led the agency to rethink its stance.
Patrick McHenry, the former Chair of the House Financial Services Committee, submitted a comment letter in May 2023 expressing that the rule posed “considerable concerns” for cryptocurrency firms.
He pointed out that the regulation discouraged federally chartered banks from accepting custody of assets owned by crypto-related companies, which could leave players in the cryptocurrency sector without suitable custody options.
Changes in Regulatory Focus
Uyeda noted that the SEC is concentrating on formulating regulatory policies that are consistent with statutory authority while considering cost efficiency and effectiveness.
Additionally, he mentioned another regulatory adjustment that would require mutual funds and exchange-traded funds (ETFs) to report their portfolio holdings monthly instead of quarterly. This rule, which was adopted in August under Gensler’s oversight, aimed at improving market transparency.
Nevertheless, Uyeda acknowledged emerging concerns regarding compliance costs and the potential risks associated with AI-driven data analysis. He stated that the SEC is currently examining possible modifications to the rule, such as extending the compliance deadline.
He also underscored the significance of refining definitions for small entities to accurately adjust regulatory burdens.
The regulatory body is enhancing its methods for evaluating economic impacts, legal compliance costs, and other professional expenses linked to its rulemaking activities.
Uyeda stressed that protecting client assets, fund disclosures, and digital engagement strategies—such as predictive data analytics—continue to be focal points of regulatory oversight.