Key Takeaways
- • The SEC rescinded a crypto custody accounting rule on January 23, 2025, eliminating requirements that made crypto custody economically prohibitive for publicly traded banks and state-chartered trust companies.
- • The regulatory shift marks a departure from the enforcement-driven approach under former SEC Chair Gary Gensler (April 2021–January 20, 2025) toward a more accommodative policymaking framework under new leadership, with Acting SEC Chair Mark Uyeda launching a crypto task force in late January 2025 focused on regulatory clarity.
- • State-chartered trust companies (STCs) are now permitted to serve as qualified custodians for crypto assets, expanding custody infrastructure and reducing barriers to institutional participation in digital asset markets.
- • The removal of the safeguarding rule that would have expanded custody rules beyond client assets signals the SEC's intent to reduce unnecessary compliance burdens while maintaining written internal policies and procedures for asset protection.
- • This regulatory reset aligns with the Trump administration's executive order revoking prior digital asset policies and reflects a broader shift toward clarifying the regulatory framework rather than pursuing ad hoc regulation through enforcement actions.
Summary
The SEC has rescinded a restrictive crypto custody accounting rule that had effectively prevented publicly traded banks and financial institutions from offering crypto custody services. The rule elimination, formalized on January 23, 2025, removes barriers that made crypto custody economically unfeasible for traditional financial intermediaries. This action represents a fundamental shift in regulatory philosophy following the change in SEC leadership.
Under former SEC Chair Gary Gensler's tenure from April 2021 through January 20, 2025, the agency pursued an enforcement-centric regulatory strategy, targeting digital asset platforms and projects through legal action rather than prospective rulemaking. The Gensler-era SEC relied heavily on the Howey Test to classify crypto tokens as securities and brought numerous enforcement actions, including the landmark SEC v. Terraform Labs case, which resulted in over $4.5 billion in remedies—the SEC's largest trial-related recovery to date.
Acting SEC Chair Mark Uyeda launched a crypto task force in late January 2025, signaling a pivot away from enforcement-driven regulation toward clearer, prospective regulatory guidance. According to SEC guidance, the new approach will no longer rely on ad hoc regulation through enforcement but instead establish clear frameworks for industry compliance. The rescission of the custody accounting rule is a direct manifestation of this philosophy, reducing compliance friction while maintaining safeguarding requirements through written internal policies and procedures.
The regulatory change explicitly permits state-chartered trust companies to serve as qualified custodians for crypto assets, expanding custody infrastructure for institutional investors. The Commission previously proposed a broader safeguarding rule that has since been rescinded, which would have imposed additional custody restrictions beyond client asset protection. This reset aligns with the Trump administration's executive actions revoking prior digital asset policies, creating a more permissive regulatory environment for crypto financial services.
For institutional investors and financial intermediaries, the rule change materially lowers the operational and regulatory cost of offering crypto custody, potentially accelerating institutional adoption of digital assets and broadening the availability of compliant custody solutions beyond specialized crypto custodians.
Under former SEC Chair Gary Gensler's tenure from April 2021 through January 20, 2025, the agency pursued an enforcement-centric regulatory strategy, targeting digital asset platforms and projects through legal action rather than prospective rulemaking. The Gensler-era SEC relied heavily on the Howey Test to classify crypto tokens as securities and brought numerous enforcement actions, including the landmark SEC v. Terraform Labs case, which resulted in over $4.5 billion in remedies—the SEC's largest trial-related recovery to date.
Acting SEC Chair Mark Uyeda launched a crypto task force in late January 2025, signaling a pivot away from enforcement-driven regulation toward clearer, prospective regulatory guidance. According to SEC guidance, the new approach will no longer rely on ad hoc regulation through enforcement but instead establish clear frameworks for industry compliance. The rescission of the custody accounting rule is a direct manifestation of this philosophy, reducing compliance friction while maintaining safeguarding requirements through written internal policies and procedures.
The regulatory change explicitly permits state-chartered trust companies to serve as qualified custodians for crypto assets, expanding custody infrastructure for institutional investors. The Commission previously proposed a broader safeguarding rule that has since been rescinded, which would have imposed additional custody restrictions beyond client asset protection. This reset aligns with the Trump administration's executive actions revoking prior digital asset policies, creating a more permissive regulatory environment for crypto financial services.
For institutional investors and financial intermediaries, the rule change materially lowers the operational and regulatory cost of offering crypto custody, potentially accelerating institutional adoption of digital assets and broadening the availability of compliant custody solutions beyond specialized crypto custodians.
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