SEC Withdraws Crypto Rules Proposed Under Biden Administration

Coin WorldFriday, Jun 13, 2025 1:27 am ET
2min read

The US Securities and Exchange Commission (SEC) has withdrawn a series of rules proposed during the Biden administration, including two significant ones related to cryptocurrency. The agency announced on Thursday that it was rescinding certain notices of proposed rulemaking issued between March 2022 and November 2023 under the leadership of former Chair Gary Gensler. The SEC stated that it does not intend to issue final rules with respect to these proposals, but new rules may be proposed in the future if the agency changes its stance.

Among the 14 rules withdrawn by the SEC was Rule 3b-16, which aimed to expand the definition of “exchange” to include decentralized finance (DeFi) protocols. This amendment would have tightened crypto custody standards for investment advisers by defining certain terms used in the definition of “exchange” to include “systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities.” The broad statement could have seen many DeFi protocols categorized as securities exchanges. The SEC first published proposed amendments to Rule 3b-16 under the Exchange Act in March 2022. Then-acting SEC chair Mark Uyeda proposed abandoning the rule change to expand the definition of “alternative trading systems” to include crypto firms in March.

The SEC also rescinded a rule proposed in March 2023 that would have increased custody requirements for crypto. The proposed Safeguarding Advisory Client Assets rule aimed to expand existing Custody Rules under the Investment Advisers Act of 1940. It was broadly framed to apply to all client assets but was particularly significant for crypto as it aimed to bring digital assets more explicitly under SEC custody requirements. Investment firms would have been required to hold all client assets, including crypto, with a “qualified custodian,” typically regulated banks or broker-dealers. Most crypto exchanges and wallet providers did not meet the definition of “qualified custodians,” which could have forced advisers to change providers or exit the space. In March, Uyeda asked his staff to look at possibly withdrawing the proposed crypto custody rule.

Other rules withdrawn by the regulator included cybersecurity risk management and reporting rules for investment advisers and funds, which had implications for crypto fund managers and digital asset custodians. A rule for position reporting for large security-based swaps, potentially affecting entities with large crypto derivatives exposures, was also withdrawn. The regulator also revoked its proposal to make public companies comply with enhanced ESG (environmental, social, and governance) reporting requirements.

This move by the SEC is part of a broader effort by the current administration to review and potentially reverse regulations implemented by its predecessor. The withdrawal of these rules suggests a more lenient stance on cryptocurrencies, which could have implications for the industry's future development and the role of regulatory bodies in overseeing it. The decision to axe the proposed crypto rules comes at a time when the cryptocurrency market is experiencing significant growth and innovation. DeFi platforms, which allow for financial services without traditional intermediaries, have gained popularity due to their potential to democratize access to financial services. Similarly, digital asset custody solutions are crucial for the secure storage and management of cryptocurrencies, which are increasingly being adopted by institutional investors.

The repeal of these rules may also signal a shift in the SEC's priorities, as the agency focuses on other areas of financial regulation. The withdrawal of the proposed rules on DeFi and digital asset custody could indicate that the SEC is taking a more hands-off approach to these emerging technologies, allowing the market to develop organically. However, this could also raise concerns about the lack of regulatory oversight in an industry that has been plagued by scams and fraudulent activities.

The impact of these regulatory changes on the cryptocurrency industry remains to be seen. While the repeal of the proposed rules may provide some relief to crypto companies and investors, it also raises questions about the future of regulatory oversight in this rapidly evolving sector. The SEC's decision to withdraw these rules could set a precedent for how the agency approaches future regulatory challenges in the cryptocurrency space, and it will be important for stakeholders to closely monitor developments in this area.