Under the Biden Administration, certain rules proposed by the U.S. Securities and Exchange Commission regarding crypto custody and exchanges have been withdrawn by the commission itself.
On Thursday, the SEC announced they are “pulling back some proposals for new rules” that were initially put forth by the previous chair, Gary Gensler, from March 2022 to November 2023.
Instead, the agency mentioned they currently don’t plan on setting definitive rules regarding these suggestions. However, if their position were to shift in future regulatory decisions, they may propose fresh rules at that time.
This refers to the most recent policy change initiated by President Donald Trump, aiming at extensive removal of regulations that apply to both cryptocurrency and traditional financial markets.
3b16, the designated custodian, along with all other pending rules proposed by Gensler, were put on hold as stated by Coinbase’s chief legal officer, Paul Grewal, on platform X.
Exchange definition rule nullified
One of the 14 regulations withdrawn by the SEC was Rule 3b-16, a proposal aimed at broadening the term “exchange” to encompass decentralized finance platforms and enhancing cryptocurrency safekeeping requirements for financial advisors.
The amendment clarified specific phrases utilized when explaining what constitutes an “exchange,” by incorporating systems that provide flexible trading interests and messaging rules, acting as platforms where investors in securities can connect with each other.
It’s possible that various Decentralized Finance (DeFi) protocols might be classified as types of stock exchanges.
The SEC first published proposed amendments to Rule 3b-16 under the Exchange Act in March 2022.
As an analyst, I suggested in March that we reconsider and rescind the proposed amendment to broaden the classification of “alternative trading systems” to encompass cryptocurrency entities, which was initially put forth by then-acting SEC chair Mark Uyeda.
Crypto custody rule rescinded
In simple terms, the Securities and Exchange Commission (SEC) did not move forward with a regulation proposed in March 2023, which aimed to increase custody standards for cryptocurrencies.
As an analyst, I’d rephrase that statement as follows: Under the proposed Safeguarding Advisory Client Assets rule by the SEC, the existing Custody Rules under the Investment Advisers Act of 1940 would be expanded. This rule, encompassing all client assets, holds particular importance for the crypto sector, as it aims to more clearly incorporate digital assets within the scope of SEC custody requirements.
Investment companies must keep their clients’ assets, both traditional and cryptocurrencies, in safekeeping with a “certified guardian,” usually recognized financial institutions like licensed banks or brokers.
Many crypto exchange and wallet services failed to qualify as “authorized custodians,” potentially requiring financial advisors to switch providers or depart from the cryptocurrency sector altogether.
In March, Uyeda asked his staff to look at possibly withdrawing the proposed crypto custody rule.
🔁 UPDATE: The Securities and Exchange Commission (SEC) has decided to rescind several regulatory proposals, such as the extended Custody Rule, regulations for decentralized finance (DeFi) exchanges under Rule 3b-16, and heightened Environmental, Social, and Governance (ESG) reporting requirements, which were introduced during the tenure of Chair Gensler.
— CryptoMoon (@CryptoMoon) June 13, 2025
Other rules rescinded
The regulator also eliminated several guidelines, among them were cybersecurity risk management and reporting regulations for investment advisors and funds. This change impacts crypto fund managers and digital asset holders who serve as custodians.
The regulation regarding the reporting of positions for significant security-backed swap contracts, which could impact entities holding substantial cryptocurrency derivative investments, was additionally rescinded.
The regulatory body has withdrawn its plan that would have mandated stricter ESG (environmental, social, and governance) disclosure for publicly traded corporations.
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2025-06-13 08:15