In a sweeping rollback of Biden-era financial oversight, the U.S. Securities and Exchange Commission (SEC) has formally abandoned several proposed rules targeting the cryptocurrency industry—most notably, provisions that would have expanded the agency’s authority over decentralized finance (DeFi) and tightened crypto custody regulations.
Among the rescinded measures was the controversial Rule 3b-16 amendment, which sought to redefine a securities exchange to include decentralized platforms such as DeFi protocols. Under this proposal, blockchain-based communication systems for trading could have been regulated as traditional exchanges, sparking concern across the crypto industry.
Originally introduced in March 2022 under former SEC Chair Gary Gensler, the proposal formed a core part of his enforcement-heavy approach to digital assets. However, under the leadership of new SEC Chair Paul Atkins, the agency has now officially withdrawn the measure—alongside more than a dozen other proposals floated between 2022 and 2023.
In a statement on Thursday, the SEC confirmed it would not finalize these rules, noting that future proposals would be considered “if warranted.” The move aligns with President Donald Trump’s deregulatory agenda, which has specifically emphasized reducing barriers to crypto innovation.
“Down goes 3b16, qualified custodian, and all the other unfinished Gensler rule proposals,” said Coinbase’s Chief Legal Officer Paul Grewal in a post on X.
Also scrapped were proposed amendments to the “qualified custodian” framework, which would have required investment advisers to store digital assets only with narrowly defined custodians—such as regulated banks or broker-dealers. The rule had been widely criticized for excluding most crypto-native platforms.
SEC Pulls Back on Crypto Custody Restrictions
In a decisive move away from tighter oversight, the SEC has withdrawn its Safeguarding Advisory Client Assets proposal—a draft rule introduced in March 2023 that aimed to extend custody requirements to digital assets.
The proposal would have forced investment advisers to hold client crypto assets with “qualified custodians,” excluding most crypto exchanges and wallet providers. Critics warned that the rule would disrupt existing arrangements and potentially drive advisers out of the sector entirely.
SEC Commissioner Mark Uyeda had previously signaled doubts about the rule, and its withdrawal now confirms the agency’s change in direction. By scrapping the measure, the SEC removes a major compliance barrier for crypto-focused investment firms at a time when it is reevaluating its broader regulatory stance on digital assets.
Broader Rollback Includes ESG and Derivatives Rules
In addition to abandoning crypto-specific rules, the SEC has also withdrawn several other Biden-era proposals that could have affected the digital asset sector. These include draft regulations on cybersecurity risk disclosures for investment advisers and funds. Critics argued the rules would have created costly compliance burdens for crypto-native firms operating in an already volatile security environment.
The commission also scrapped a proposed rule on position reporting for large security-based swaps—a move welcomed by firms with exposure to crypto derivatives, who viewed the planned transparency requirements as excessive and poorly tailored to decentralized markets.
Finally, the SEC repealed planned ESG (Environmental, Social, and Governance) disclosure requirements, signaling a broader shift away from policy frameworks aimed at expanding financial reporting in both traditional and blockchain-based sectors.
Quick Facts
- SEC formally scraps Rule 3b-16 and crypto custody rules.
- Move aligns with Trump administration’s deregulatory crypto agenda.
- Coinbase legal officer hails reversal as “down goes 3b16.”
- ESG, derivatives, and cybersecurity rules also withdrawn.
- SEC says future proposals will be issued “if warranted.”
