SEC Commissioners Call for Immediate Revamp of Crypto Custody Rules

SEC Commissioners Push for Quick Update on Crypto Custody Rules

When it comes to protecting digital assets like Bitcoin and Ethereum, clear rules are essential. This week, two SEC Commissioners stressed just how important it is to modernize the United States’ crypto custody regulations.

They believe the current rules are outdated and fall short of what today’s investors and financial firms need. So what’s the urgency all about? And why should you care?

Let’s break it down.

What Is Crypto Custody, and Why Does It Matter?

Crypto custody basically means safely storing cryptocurrencies for others. Think of it like how banks protect your cash, jewelry, or important papers in a safe deposit box.

But with digital assets, it’s a little trickier because:

Cryptocurrencies are intangible—they exist only online.

There’s no bank vault to lock them away in.

Hackers are constantly looking for flaws to exploit.

This is why having strong and clear rules around crypto custody is so crucial.

The 2009 Custody Rule: Outdated and Falling Behind

Today’s crypto custody rules are based mainly on the 2009 Custody Rule, originally meant for things like stocks and bonds.

Here’s the problem:

The 2009 rule doesn’t even mention digital assets.

It was designed for a totally different world—one without Bitcoin, blockchain, or DeFi.

Crypto custody brings unique risks that the old rule doesn’t even consider.

Imagine trying to use a flip phone in today’s smartphone world. It just doesn’t fit anymore. That’s why Commissioners Hester Peirce and Mark Uyeda are calling for action.

Why Are SEC Commissioners Speaking Out Now?

Two key reasons: innovation and risk.

The crypto world is growing fast. New coins, platforms, and services pop up all the time. Traditional finance firms want to offer crypto services too, but they’re held back by unclear rules.

Without updates to the custodian rule:

Investors might not get the protections they deserve.

Firms could avoid offering crypto services altogether, fearing regulatory trouble.

Innovation could slow, pushing crypto businesses to friendlier countries overseas.

If you’ve ever hesitated to dive into crypto because you weren’t sure it was “safe,” you’ve felt the effects of these unclear rules.

What Changes Do the Commissioners Want?

Peirce and Uyeda believe that instead of tying crypto to old rules, regulators should create solutions that fit the digital age. They outlined a few priorities:

Build Crypto-specific Guidance

The rules for handling cryptocurrencies shouldn’t be copied and pasted from traditional finance. Digital assets require digital solutions.

Clarify Who Can Offer Crypto Custody Services

Currently, trust companies, banks, and other financial firms are unsure if they’re even allowed to secure cryptocurrencies.

Clear green lights—or red ones—would help everyone know where they stand.

Give Flexibility for Different Business Models

Every crypto project isn’t the same. Some focus on wallets; others handle trading platforms. Good rules would accommodate different legitimate business models, not force them into a one-size-fits-all box.

What About the Proposed Rule from 2023?

In February 2023, the SEC proposed expanding its Qualified Custodian rule to include more crypto-specific situations.

Sounds good, right? Well, not everyone is on board.

The two commissioners criticizing the current situation also aren’t thrilled with the 2023 proposal. They think it:

Could add unnecessary red tape.

Might limit innovation instead of supporting it.

Doesn’t properly address how different crypto businesses operate.

They’re pushing for a rethink—something faster, more flexible, and practical.

How Could This Impact You?

Whether you’re deep into crypto or just curious, stronger and smarter crypto custody rules matter for:

Investor Protection

You want to know that when you buy Bitcoin, it’s stored safely and that you have legal rights if something goes wrong.

Business Growth

More clear rules could mean more services—like crypto savings accounts, retirement accounts, and even loans—becoming available.

U.S. Competitiveness

Without updated rules, crypto firms might pack up and move to countries with friendlier regulations. Loss of jobs, innovation, and market leadership could follow.

Imagine if Silicon Valley had relocated to Europe two decades ago because the U.S. failed to adjust to the internet boom. A similar risk exists here.

What Happens Next?

It’s unclear how quickly—or even if—the SEC will update crypto custody rules. Governments and agencies tend to move slowly, even when technology changes fast.

But with two Commissioners raising their voices, more industry leaders speaking out, and public interest growing, pressure is building.

As an investor, it’s smart to:

Stay informed about crypto regulation news.

Ask service providers how they secure your digital assets.

Support policies that embrace innovation without sacrificing safety.

Final Thoughts: The Time for Change Is Now

Cryptocurrencies aren’t just a passing trend. They are reshaping the financial landscape, much like how the internet transformed communication.

Outdated custody rules are like trying to drive a race car on a dirt road—they’re slowing progress down and putting everyone at risk.

By building clear, thoughtful, and flexible crypto custody regulations, the U.S. can protect investors, support businesses, and stay competitive in an increasingly digital world.

Wouldn’t it be better if our financial future was protected with tools designed for today’s technology rather than yesterday’s?

Let’s hope regulators agree—and act before it’s too late.