The SEC appears ready to dump a contentious crypto custody rule that rattled the industry for over a year. Acting Chair Mark Uyeda recently acknowledged the considerable challenges with the proposal, introduced under Gary Gensler’s watch in February 2023, and has directed staff to explore alternatives alongside the agency’s crypto task force.
The rule would have forced investment advisers to store client crypto with “qualified custodians” – a requirement that proved wildly unpopular. No surprise there. The proposal triggered an avalanche of criticism from all corners, with crypto firms, traditional banks, and even Congressional Republicans pushing back hard against what many viewed as regulatory overreach.
Speaking at the Investment Company Institute’s 2025 conference in San Diego, Uyeda suggested the SEC might withdraw the rule entirely. This marks the second time he’s reconsidered existing or proposed regulations, signaling a dramatic shift from the previous administration’s hardline stance on digital assets.
The American Bankers Association had warned the rule would greatly impact business operations. They weren’t alone. Industry players repeatedly argued it would severely limit the pool of qualified crypto custodians, fundamentally strangling institutional involvement in the market.
This potential reversal comes amid a broader reassessment of crypto policies. The SEC has already created a dedicated crypto task force, rescinded controversial accounting guidance, dropped enforcement actions against major players, and issued statements on memecoins. Commissioner Hester Peirce was particularly vocal in her opposition, becoming the sole dissenting vote against the custody measure when it was initially proposed.
The proposal specifically required registered investment advisers to adhere to stricter custody requirements for their clients’ cryptocurrency assets, creating significant compliance burdens.
They’ve even scheduled their first roundtable on defining security status for digital assets. Unlike DEX platforms, centralized exchanges fall more clearly under the SEC’s regulatory purview due to their more traditional operational structure and data collection practices.
For investment advisers and the crypto industry, killing the custody rule would remove a major roadblock. It could open doors for increased institutional adoption and influence how advisers approach crypto investments going forward.
Whether the SEC withdraws the rule completely or crafts more tailored regulations remains to be seen. But one thing’s clear: the regulatory landscape for digital assets is evolving fast, and this administration seems determined to chart a different course than its predecessor.
