SEC Considers Reversal of Stricter Custody Rules for Cryptocurrency Investment Advisors
On Monday, during an industry conference in San Diego, Acting SEC Chair Mark Uyeda announced that the U.S. Securities and Exchange Commission (SEC) is considering rolling back a proposed rule aimed at imposing stricter custody requirements on investment advisors handling cryptocurrencies. This development comes against the backdrop of significant public feedback expressing concerns over the rule’s broad scope and potential compliance challenges.
Background on the Proposed Custody Rule
The custody rule, which was originally proposed in February 2023 under the Biden administration, would have mandated that registered investment advisors store cryptocurrency assets with a qualified custodian and adhere to additional safeguards to ensure the security of those assets. The intent behind the proposed regulation was to enhance investor protection in the rapidly evolving cryptocurrency landscape.
Uyeda’s remarks suggest a re-evaluation of these requirements, indicating a shift towards a more industry-friendly regulatory environment. He highlighted that the feedback received from the public raised "significant objections," which has prompted the agency to consider alternative regulatory approaches.
Review of Monthly Reporting Requirements
In addition to the custody rule, Uyeda also addressed a separate but related regulatory development. The SEC is currently reviewing a new rule that requires mutual funds and exchange-traded funds (ETFs) to report their portfolio holdings on a monthly basis instead of quarterly. This regulation, which was adopted in August 2023, aimed to enhance transparency in the financial markets. However, it has faced criticism from industry stakeholders, particularly regarding the implications of such frequent reporting in the context of trading strategies increasingly utilizing artificial intelligence.
A Shift in Regulatory Approach
These recent announcements reflect a broader shift in the SEC’s policy framework, particularly under the leadership of Acting Chair Uyeda, who has indicated a departure from the more stringent regulations instigated during former Chair Gary Gensler’s tenure. Under Uyeda’s watch, the SEC has already rescinded certain accounting guidance for cryptocurrency firms, ceased enforcement actions against some industry players, and established a dedicated task force to assess regulatory priorities in the crypto space.
Looking ahead, the impending transition to former SEC Commissioner Paul Atkins as the new chair suggests further regulatory changes may be on the horizon. Uyeda’s willingness to consider revisions to existing rules signifies a potential pivot toward a more accommodating regulatory stance for digital assets and financial institutions that have expressed concerns over stringent compliance demands.
As the SEC navigates these complex regulatory waters, the industry and investors alike will be keenly monitoring any developments that may influence the evolving landscape of cryptocurrency regulation in the United States.
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