Acting SEC Chairman Mark Uyeda Proposes Withdrawal of Crypto Custody Rule

In the latest sign of the U.S. Securities and Exchange Commission’s (SEC) pro-crypto stance, the agency’s acting chairman revealed that he has ordered staff to revisit the 2023 crypto custody rule.

The rule requires registered investment advisers to custody any crypto purchased for clients with a “qualified custodian.” The SEC noted at the time that many crypto trading platforms offering custody services did not meet that standard.

The rule was heavily criticized when proposed under former SEC Chairman Gary Gensler. At the time, venture capital firm a16z’s General Counsel Miles Jennings called the rule a “misguided and transparent attempt to wage war on crypto.”

Given the outcry, Acting Chairman Mark Uyeda said Monday that “there may be significant challenges to proceeding with the original proposal.”

In a speech at an Investment Company Institute conference on March 17, Uyeda said he has “asked the SEC staff to work closely with the crypto task force to consider appropriate alternatives, including its withdrawal.”

Uyeda criticized the rule at the time of its proposal, noting that the release’s preamble explicitly stated that “an adviser that trades crypto assets on a platform would violate the proposed rule” and said it was “unlikely” that crypto assets could be held at qualified custodians or traded on exchanges without violating the rule.

“How could an adviser seeking to comply with this rule possibly invest client funds in crypto assets after reading this release?” Uyeda asked in 2023.

In an X post about his March 17 speech, the SEC quoted him saying that “the Commission should act like a super-sized freighter, not a speedboat — and that means returning to a smoother regulatory course than the rapid changes that have been promulgated over the past four years.”

Under the Trump Administration, the SEC has withdrawn lawsuits against exchanges like Coinbase and Kraken and has withdrawn SAB 121, which required banks to list crypto assets held for clients as liabilities on their balance sheets, effectively preventing them from custodying them.