SEC Withdraws Controversial Crypto Rules Under New Leadership

The United States Securities and Exchange Commission has officially withdrawn several regulatory proposals introduced under Gary Gensler’s leadership. Among the rescinded rules are the controversial Custody Rule and Exchange Act Rule 3b-16. Experts in the industry believe this development represents a critical turning point for cryptocurrency markets.

Under the leadership of the present SEC team, the new changes demonstrate a strategic shift while meeting the increasing need for clear regulations among digital asset participants. The decision removes several rule proposals that previously caused concern within the industry. The Custody Rule would have required investment advisers to place client assets, including crypto, with qualified custodians. The expanded definition of custody also risked disqualifying many state-chartered trust companies. Critics had warned that the proposal could further limit access to financial services for crypto firms.

The SEC also canceled Exchange Act Rule 3b-16, which aimed to regulate decentralized finance platforms by categorizing them as national securities exchanges. Compliance would have required DeFi platforms to register or operate under Regulation ATS. Crypto advocates viewed these provisions as excessive and ill-suited to the nature of decentralized technologies. The repeal marks a departure from the stricter oversight model seen under the previous SEC administration.

In addition to the Custody Rule and Rule 3b-16, the SEC scrapped pending proposals on cybersecurity risk management and ESG disclosures for investment firms. These measures were part of a broader initiative that included enhanced requirements for financial service providers. Their removal signals a realignment of regulatory priorities under the current SEC leadership.

The timing of the decision follows ongoing delays in spot altcoin ETF approvals. The commission recently postponed a verdict on the Grayscale Spot Hedera ETF, adding to industry frustration over the lack of clear guidance. Despite the delays, the withdrawal of enforcement-heavy rule proposals has been welcomed by companies operating in the digital asset space.

The recent actions from the SEC are being interpreted as a recognition of the unique structure and needs of the crypto sector. Coinbase Chief Legal Officer Paul Grewal emphasized the significance of the decision, confirming that all unfinished Gensler-era proposals have been rescinded. Grewal’s comments reflect growing optimism that future regulations may better align with industry requirements and innovation.

Crypto advocates view the rollback as a catalyst for reform. With the start of President Donald Trump’s administration and Paul Atkins chairing the SEC, the agency appears to be adopting a more constructive stance. The April guidance on disclosing crypto assets classified as securities further highlights the shift toward clearer compliance standards.