The US Securities and Exchange Commission (SEC) has withdrawn multiple anti-crypto rules proposed during the administration of its former chair, Gary Gensler. Coinbase chief legal officer Paul Grewal shared the development on X, noting that Rule 3b-16 and several others are now gone.
Rule 3b-16 is meant to expand the definition of an “exchange” to include DeFi protocols. This would have been possible due to the amendment defining an exchange to include “systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities.”
At the time, the proposal faced several pushbacks from the crypto community, with many calling for the regulator to remove the changes due to the impact it could have on crypto innovation.
While the withdrawal is now happening under the new SEC Chair, Paul Atkins, talks of the SEC abandoning the rule have started since Gensler left the regulator. Former SEC acting chair Mark Uyeda noted a few months ago that he had advised the SEC staff to abandon part of the rule affecting crypto because the original proposal was meant to address alternative trading systems for the treasury markets.
SEC withdraws crypto custody rules and others
Meanwhile, the SEC also withdrew several other proposed rules, including those that are not necessarily impacting the crypto market. A major rescinded proposal was the Safeguarding Advisory Client Assets rule that increased custody requirements for crypto.
Under the proposal, which would have applied to all investment advisers, firms must hold all client assets, including crypto, with a qualified custodian. This would have proven challenging for crypto investment firms, which usually hold cryptocurrencies in exchanges and wallets, entities that do not meet the criteria of qualified custodians.
Uyeda was also involved in the efforts to withdraw this proposed rule, as he stated in a speech on March 17 that much of the public feedback the SEC got suggested concerns about the broad scope. Interestingly, he had earlier criticized some provisions in the rule as commissioner.
He said then that the proposal could prevent an investment adviser from allocating funds to crypto. However, he still agreed with the need for rules to safeguard clients’ assets and supported the proposal.
Beyond this, the regulator also withdrew 12 other proposed rules apart from these two. Some of these rules could impact crypto entities, including the proposed rules requiring entities to report positions of large security-based swaps and another on cybersecurity risk management and reporting for investment firms.
Other rescinded proposals include Prohibition against Undue Influence over Chief Compliance Officers, Amendments to 14a-8, which is the Process for Including Shareholders Proposals in the Company’s Proxy Statements, and the Enhanced Disclosure for ESG investments.
US regulators continue to shift away from regulation by enforcement
Meanwhile, the latest round of SEC decisions moves the agency from its regulatory approach under Gensler. It continues the rollback of several anti-crypto policies implemented or about to be implemented under the previous administration.
It is not just the SEC that has rescinded or withdrawn rules or guidances since President Donald Trump was sworn in. Other federal agencies, including the Federal Reserve and Office of Comptroller of Currency, have also taken similar decisions.
Unsurprisingly, many have praised the changes as a welcome development as efforts to bring regulatory clarity to the crypto industry continue in Congress. While more progress appears to have been made on the GENIUS stablecoin act, the market structure legislation is also advancing in the House.
Perhaps in a big sign of the changing times, the financial watchdog recently announced that former global head of institutional markets at Blockchain.com, Jamie Selway will become the Director of Trading and Markets, showing that the agency is bringing those with crypto industry expertise into its fold.
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