SEC Retreat? Shocking Crypto Custody Proposal Faces Possible Withdrawal

Even so, SEC Acting Chairman Mark Uyeda admitted the growing challenges in implementing the proposal, suggesting possible withdrawal or reconsideration.

Uyeda emphasized that the scope of the rule caused concerns in the industry. The proposal wanted to apply custody requirements to nearly all assets held by investment advisers, including cryptocurrencies, which many viewed as an overreach.

Stakeholders were concerned about the compliance burden and operational issues, which led the SEC to reconsider. Uyeda said that whatever method is used to regulate, it should be cost-effective and within the authority of the commission under the legislation.

This is a departure from the SEC’s previously aggressive approach under previous leadership. Uyeda’s statement suggests a change in priority, where rules that balance investor protection and practical implementation take precedence.

The potential repeal of the custody rule is a reflection of broader uncertainty in U.S. crypto regulation. The SEC has increased its oversight of the digital asset sector in recent years, leading to legal challenges and compliance complications.

The rule’s withdrawal is a rare instance of a pullback in regulation, indicating the difficulties in applying traditional financial regulations to digital assets.

Industry leaders have long contended that strict custody regulations might smother innovation and push crypto firms offshore. That the SEC is willing to reconsider its approach is a sign of a desire to be more business-friendly.

Beyond cryptocurrency, Uyeda’s words extended into other areas of financial regulation, including ESG disclosures and digital engagement practices. His words suggest a more considered approach to regulation, focusing on transparent guidelines rather than precipitous policy change.

Recognizing the shifting environment, the SEC can strive to establish a regulatory environment that fosters market stability and investor confidence.

In the future, rulemaking by the SEC is going to be done in a cautious manner, with an eye on stability. Uyeda described it as a “super-sized freighter,” suggesting that rule changes could be reconsidered. The commission is also considering delaying compliance deadlines, citing past delays as examples of flexibility.