SEC Acting Chair Signals Potential Withdrawal of Proposed Crypto Custody Rule
San Diego, CA – In a significant development regarding the regulation of cryptocurrency, acting chair of the U.S. Securities and Exchange Commission (SEC), Mark Uyeda, revealed during an investment industry conference on March 17 that he has requested his staff to explore the possibility of withdrawing a controversial proposed rule aimed at tightening crypto custody standards for investment advisers.
Background of the Proposed Rule
The proposed rule, introduced in February 2023 under the Biden administration, sought to expand the custody requirements for investment advisers to encompass all types of assets held for clients, including cryptocurrencies. A key component of the proposal mandated that investment advisers must store their clients’ cryptocurrency assets with a qualified custodian. Former SEC chair Gary Gensler emphasized that crypto platforms could not be relied upon as qualified custodians due to their unique operational circumstances, prompting the need for enhanced protective measures.
Concerns and Challenges
In his prepared remarks, Uyeda noted that significant concerns had been raised by various commenters regarding the broad scope of the proposed rule. He acknowledged that the prevailing apprehension surrounding the rule might present considerable challenges in advancing the original proposal. “Given such concern, there may be significant challenges to proceeding with the original proposal,” Uyeda stated. As a result, he has tasked SEC staff to collaborate with the agency’s crypto task force to consider appropriate alternatives, which may include the rule’s withdrawal.
Uyeda’s comments highlight the friction that had developed within the SEC regarding the proposal, particularly between himself and Commissioner Hester Peirce. Peirce, who was the only commissioner to vote against the rule, argued that the proposal could jeopardize the availability of qualified custodians for crypto assets, potentially stifling innovation and access within the industry.
SEC’s Broader Cryptocurrency Regulatory Framework
Uyeda’s recent statements come on the heels of his earlier remarks on March 10 when he sought options for abandoning another regulatory proposal that would require certain cryptocurrency firms to register with the SEC as exchanges. This reflects a broader shift within the SEC toward re-evaluating its stance on cryptocurrency regulation, which has faced pushback from industry advocates and some regulatory peers.
In a related move, during the Trump administration, the SEC rescinded a rule requiring financial firms to treat cryptocurrencies as liabilities on their balance sheets. This trend signals an evolving regulatory landscape that may seek to balance investor protection with the pace of innovation within the digital asset space.
Upcoming Changes at the SEC
The timing of Uyeda’s comments is significant, as there are reports indicating that former SEC Commissioner Paul Atkins has been selected by President Donald Trump to assume the chair position from Uyeda. A Senate hearing on Atkins’ nomination is reportedly scheduled for March 27, suggesting that further changes in leadership could influence the SEC’s approach to cryptocurrency regulation moving forward.
The ongoing discussions and potential changes in policy regarding crypto custody underline the complexities of regulating a fast-evolving digital asset landscape, leaving many questions unanswered for industry stakeholders and investors alike.
Conclusion
As the SEC navigates its role in regulating cryptocurrencies, the agency’s willingness to reconsider previously proposed rules reveals both the challenges and ongoing debates within the regulatory framework. Stakeholders in the investment and cryptocurrency sectors will be closely monitoring these developments as they unfold.
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