Nikolas Sargeant
The Securities and Exchange Commission has withdrawn 14 regulatory proposals from the Biden administration, including two major crypto-related rules that would have significantly tightened oversight of digital asset custody and decentralized finance protocols.
The regulatory rollback, announced Thursday, eliminates proposed rules issued between March 2022 and November 2023 under former SEC Chair Gary Gensler. The agency stated it "does not intend to issue final rules with respect to these proposals," though new regulations could emerge if the commission changes direction.
This sweeping withdrawal represents President Trump's first major deregulatory action targeting crypto markets, fulfilling campaign promises to reduce regulatory burden on digital assets and traditional finance sectors.
"Down goes 3b16, qualified custodian, and all the other unfinished Gensler rule proposals," celebrated Coinbase Chief Legal Officer Paul Grewal on social media, highlighting the industry's relief over the regulatory retreat.
Controversial DeFi Exchange Rule Eliminated
The most significant crypto-related withdrawal involved Rule 3b-16, which would have dramatically expanded the legal definition of "exchange" to encompass decentralized finance protocols and automated market makers.
The proposed amendment defined exchanges as "systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities." This broad language threatened to classify numerous DeFi protocols as traditional securities exchanges, subjecting them to extensive regulatory compliance requirements.
Originally proposed in March 2022, the rule faced intense industry pushback for potentially stifling DeFi innovation. Acting SEC Chair Mark Uyeda had signaled intention to abandon the rule change in March, citing concerns about overregulating emerging technologies.
Strict Crypto Custody Requirements Scrapped
The SEC also eliminated its proposed Safeguarding Advisory Client Assets rule, which would have imposed stringent custody requirements specifically targeting cryptocurrency holdings by investment advisers.
Proposed in March 2023, the rule would have required investment firms to hold all client assets, including digital currencies, exclusively with "qualified custodians" - typically regulated banks or registered broker-dealers. This requirement would have effectively excluded most cryptocurrency exchanges and wallet providers from serving institutional clients.
The custody rule sparked widespread industry opposition because most crypto service providers failed to meet qualified custodian criteria, potentially forcing advisers to abandon digital asset strategies or find alternative storage solutions.
Additional Financial Rules Withdrawn
Beyond crypto-specific measures, the SEC withdrew cybersecurity risk management rules for investment advisers and funds, which had particular implications for digital asset custodians and crypto fund managers dealing with unique security challenges.
The regulator also scrapped position reporting requirements for large security-based swaps, eliminating potential complications for entities with substantial cryptocurrency derivatives exposure.
Additional withdrawn proposals included enhanced ESG reporting requirements for public companies, reflecting the Trump administration's broader retreat from climate-focused financial regulations.
