The Acting Chairman of the Securities and Exchange Commission (SEC), Mark Uyeda, has announced his intentions to revamp the existing crypto custody rules made by the Biden-era administration to suit the ideologies of the Trump administration. Uyeda proposed his plans at the Investment Company Institute’s 2025 Investment Management Conference in San Diego, where he was addressing industry experts. He hailed the revamping efforts as a way to reduce costs and make the whole system more efficient.
The Biden-era rule required mutual and exchange-traded funds to report their portfolio holdings monthly rather than quarterly. Two years ago, the rule was established to ensure that investment advisors did not misuse or abuse their clients’ assets. However, the elaborate procedures proved to be time-consuming and costly.
The rule was criticized by the public for its broad nature, and it was legally challenged by many industry experts. The experts opined that with the advancements in artificial intelligence technology, monthly reporting would become more tiresome.
More About the Biden-era Crypto Custody Rule
The crypto custody rules proposed by the former SEC Chairman Gary Gensler were aimed at increasing transparency for regulators and investors in mutual and exchange-traded funds by requiring them to report portfolio holdings on a monthly basis rather than four times a year (quarterly basis). The rule was originally proposed in February 2023.
Under this rule, the registered investment advisors were required to maintain their clients’ assets with a qualified custodian, such as a bank or broker-dealer. The stakeholders were doubtful that the rule would affect the crypto industry as banks might back out from doing business with the industry due to these stringent rules.
The Republican party members, who were the opposition at the time of the making of this rule, had opposed the rules stating that the cost that the investors would have to endure while complying with the rule would be much higher than the promised benefits.
Gary Gensler put forth this rule stating that frequent reporting would help investors monitor the performance of their monetary holdings and identify overlapping investments while giving the SEC greater scope to identify trends and respond during periods of market stress.
Another possible drawback of the rule was that the risk of predatory trading would increase whereby investors could copy the trading strategies of other investors as the strategies were made transparent and readily available for everyone to see and understand. Many others were doubtful if the SEC could handle the high volume of data that would come in with monthly reporting as the Securities and Exchange Commission (SEC) was already infamous for data breaches.
SEC Under the Incumbent Trump Administration
The incumbent US president Donald Trump being a pro-crypto advocate is revisiting all the rules made by his predecessor Biden and his administration. Several of the executive orders that he signed soon after taking over as the US president are expected to have far-reaching consequences on the SEC. Trump appointed Mark Uyeda as the Acting Chairman of the commission, and Paul Atkins was nominated to be the SEC chairman, which is awaiting the Senate’s approval.
Talks are also underway to merge the SEC and the CFTC (the Commodity Futures Trading Commission) into a single agency. Environmental, Social, and Governance (ESG) related rules followed by the SEC will be unwinded by the administration. The commission will partner with industry experts to form new regulations, rather than enforcing their decisions on the stakeholders.
Regarding the crypto industry, the SEC under the new leadership will revoke the regulations and make the country investor-friendly. The authorities have also announced a new SEC crypto task force.
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The Bottom Line
The new SEC leadership is revamping the rules and regulations laid down by their predecessors in the hope that the US will become the leader in the crypto industry, surpassing the influence of China and other competitors. The proposed revamping of the crypto custody rule will bring in more investors to the industry with the expected ease of doing business.