The acting chair of the SEC, Mark Uyeda, indicated that the agency may modify or abandon a rule introduced during the Biden administration that sought to enhance crypto custody regulations for investment advisers.
In statements delivered at an investment industry conference in San Diego on March 17, Uyeda noted that the rule initially proposed in February 2023 had prompted “significant concern” from commentators regarding its “broad scope.”
“In light of these concerns, it could be quite challenging to move forward with the original proposal. Therefore, I have directed SEC staff to collaborate closely with the crypto task force to explore suitable alternatives, including potential withdrawal of the proposal,” Uyeda explained.
This rule, initially suggested during Gary Gensler’s leadership of the agency, intended to broaden custody regulations for investment advisers to cover all client assets, including cryptocurrencies, while increasing the requirements for their protection.
Source: SEC
This proposed regulation would have required investment advisers to store their clients’ cryptocurrencies with a qualified custodian. At the time, Gensler expressed that advisers “cannot depend on” crypto platforms as qualified custodians given their operational practices.
The proposal faced pushback from Uyeda and Commissioner Hester Peirce, along with industry groups who argued that the rule was both unlawful and harmful.
“How could an adviser looking to comply with this rule feasibly invest client funds in crypto assets after reviewing this release?” Uyeda remarked previously. However, he expressed support for the proposal despite disagreeing with certain provisions.
Peirce, the only commissioner among five to oppose the rule, stated at that time that the proposed changes “would extend the custody requirements to crypto assets while likely reducing the number of qualified crypto custodians.”
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Uyeda’s recent comments followed his statement on March 10, where he revealed he had instructed SEC staff to look into “options on abandoning” part of a proposal that would require some crypto firms to register with the regulator as exchanges.
The SEC, under the previous administration, also revoked a rule requiring financial firms holding cryptocurrencies to treat them as liabilities on their balance sheets, known as SAB 121.
In December, former President Donald Trump selected Paul Atkins, a former SEC Commissioner, to succeed Uyeda as chair of the agency. This transition appears imminent, with a Senate hearing scheduled for March 27.
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