The U.S. Securities and Exchange Commission (SEC) may move to withdraw a proposed rule that would tighten crypto custody requirements for investment advisers. Acting SEC Chair Mark Uyeda indicated that the rule, which was initially proposed under the Biden administration in February 2023, could face significant changes or even be scrapped.
Concerns Over the Proposed Rule
In a recent speech at an investment industry conference in San Diego on March 17, 2025, Uyeda shared that the SEC had received considerable concerns about the broad scope of the proposed crypto custody rule. The rule was designed to increase custodial requirements for all assets held by investment advisers, specifically targeting crypto assets.
Uyeda pointed out that the SEC had received significant concern from commenters, especially regarding the rule’s scope. This feedback has led the SEC to consider alternatives, including possibly withdrawing the proposal. “Given such concern, there may be significant challenges to proceeding with the original proposal,” Uyeda stated. He added that he had asked SEC staff to work with the crypto task force to explore other potential actions, including the rule’s withdrawal.
Background of the Custody Rule Proposal
The crypto custody rule was proposed during Gary Gensler’s tenure as SEC chair. At the time, the rule aimed to ensure that investment advisers store their clients’ crypto assets with qualified custodians. Gensler’s stance was clear: He argued that investment advisers could not rely on crypto platforms as qualified custodians because of their operational practices. This proposal was meant to ensure that clients’ crypto holdings were better protected and that there was clear accountability for managing these assets.
However, the rule faced resistance from within the SEC itself. Both Uyeda and SEC Commissioner Hester Peirce were outspoken in their opposition. Uyeda argued that the rule’s broad application could harm investment advisers’ ability to handle client funds, particularly in the crypto space. He questioned how advisers could comply with the rule while still managing crypto assets effectively.
The proposed crypto custody rule was contentious within the SEC. Commissioner Hester Peirce, the only SEC commissioner to vote against the rule, warned that the rule could have unintended consequences. She argued that the rule would likely reduce the number of qualified custodians for crypto assets, which would harm the overall ecosystem. Peirce expressed concerns that the rule’s strict custodial requirements could lead to more regulatory hurdles for crypto firms and advisers, possibly pushing them away from traditional custodians.
Shift in SEC Leadership and Potential Withdrawal of Crypto Custody Rule
Leadership changes have also influenced the SEC’s approach to crypto regulation. Uyeda, who has been the acting SEC chair since January 2025, has signaled a more cautious stance on crypto-related regulation. This shift contrasts with the more aggressive regulatory approach championed by Gensler, who led the SEC under the Biden administration.
Uyeda’s leadership has seen several regulatory reversals. Notably, under his direction, the SEC has dropped several lawsuits and investigations initiated by Gensler’s SEC. These include high-profile cases involving companies such as Coinbase, Uniswap, and OpenSea.
Moreover, Uyeda has expressed his intention to explore alternatives to some of Gensler’s controversial proposals, including those targeting crypto exchanges and custodians.
The proposal to withdraw the crypto custody rule aligns with the SEC’s broader reevaluation of its stance on crypto regulation. Uyeda’s decision to ask for alternatives suggests a more flexible approach to crypto regulation. While it remains uncertain whether the rule will be fully withdrawn, it is clear that the SEC is taking into account the concerns raised by industry players and stakeholders.
The proposed rule’s potential withdrawal is not the only sign of change at the SEC. On March 10, 2025, Uyeda indicated that the SEC staff had been tasked with considering the abandonment of another proposal that would have required some crypto firms to register as exchanges.
Paul Atkins: The New SEC Chair Nominee
In another development, Paul Atkins, President Donald Trump’s nominee for SEC chair, is making strides toward officially taking over the role. Atkins, who previously served as an SEC commissioner from 2002 to 2008, has faced delays in his confirmation due to issues with financial disclosures related to his marriage to a billionaire family.
Whether the White House has submitted the necessary documents to the Senate remains unclear. However, Senate Banking, Housing, and Urban Affairs Committee Chair Tim Scott is reportedly planning a hearing on March 27 to assess Atkins’ nomination, according to a March 17 post on X by Semafor’s Eleanor Mueller.
Atkins’ nomination has generated significant attention due to his stance on crypto regulation. Known for his more hands-off approach, Atkins is expected to bring a more collaborative approach to crypto regulation, in contrast to Gensler’s more interventionist tactics. His potential confirmation could further influence the SEC’s stance on crypto regulation, especially as the agency adjusts its policies under Uyeda’s leadership.
Looking Ahead: The SEC’s Crypto Task Force
Under the current SEC leadership, a new crypto task force has been established to address regulatory concerns related to the digital asset market. This task force, led by Commissioner Hester Peirce, is expected to play a pivotal role in shaping future SEC policies related to cryptocurrency and blockchain technology. The task force will likely focus on creating regulatory frameworks that foster innovation while ensuring investor protection.
Despite the potential withdrawal of the proposed custody rule, the SEC’s overall approach to crypto regulation is unlikely to shift dramatically in the near term. The SEC remains committed to finding ways to regulate crypto markets and ensure compliance with U.S. securities laws. The ongoing discussions and policy shifts within the SEC suggest that the agency is still grappling with balancing regulation with the needs of a rapidly growing crypto market.
2The future of crypto custody regulations is uncertain, with the SEC reconsidering its stance on the proposed rule. Mark Uyeda’s remarks highlight the agency’s responsiveness to industry feedback and its commitment to exploring alternatives. Meanwhile, confirming Paul Atkins as the new SEC chair could further shape the SEC’s approach to crypto regulation, possibly leading to more flexible and collaborative policies.
