SEC resurrecting U.S. crypto custody rule the previous administration failed to land

The language isn’t helpful in providing the contours of what this might look like, though the tone suggests an agency that will stick to its path of making crypto business easier to conduct in the U.S.

But it’s been a perilous topic in the past.

When announcing the agency’s previous custody proposal in 2023, then-Chair Gary Gensler fired a warning shot across the crypto sector. “Make no mistake: Based upon how crypto platforms generally operate, investment advisers cannot rely on them as qualified custodians,” he’d said of the proposed expansion of the agency’s custody regulations.

That proposal would have required investment advisors to place clients’ cryptocurrency with a narrow field of “qualified custodians,” which would generally have meant a chartered bank or trust company, a broker-dealer registered with the agency or a futures commission merchant under the jurisdiction of the Commodity Futures Trading Commission.

An unusual array of financial firms, crypto platforms and even a fellow regulatory agency objected to the way the SEC pursued the proposal. Senior lawyers at the Small Business Administration told the securities regulator that the agency’s effort “drastically underestimates potential impacts” that could have put smaller advisers out of business.

And investment firm a16z called it “illegal, infeasible, and dangerous.”