SEC Considering Major Relaxation of Crypto Custody & Disclosure Rules | U.S. Regulation Shifts from Restriction to Institutional Guidance

Summary

The U.S. Securities and Exchange Commission (SEC) is considering relaxing disclosure and custody standards for institutional investors holding crypto assets, signifying a shift in regulatory attitude from "restriction" to "guidance." The new proposal would allow non-bank custodians to participate and extend disclosure periods, pushing the U.S. digital asset market towards institutionalization and transparency.

I. Introduction: Subtle but Historic Shift in U.S. Crypto Regulation

In late October 2025, leaked SEC internal discussion documents revealed that regulators are actively evaluating significant adjustments to crypto custody and disclosure rules for institutional investors. This is widely interpreted as the clearest signal yet that U.S. policy is moving from high-pressure enforcement to structural accommodation. SEC Chairman Gary Gensler reportedly wrote in an internal memo: “The goal of regulation should not be to stifle innovation, but to ensure that transparency, accountability, and investor protection go hand in hand.”

II. Policy Background: From Post-FTX Crackdown to Reassessment

Since the 2022 FTX collapse, the SEC has imposed extremely strict custody requirements:

• Crypto assets must be held by “qualified custodians” (banks or licensed trust companies only)
• Periodic disclosure of holdings and wallet addresses required
• Heavy compliance burden on investment advisers

These rules triggered strong industry pushback for being overly costly and technically incompatible. With compliant custodians now mature and institutional demand surging, the SEC is rethinking whether “risk-management capability” should replace “institutional license type” as the core criterion.

III. Core Reform Directions: Three Major Adjustments Proposed

1. Flexible Custodian Qualification Non-bank specialist custodians (e.g., Coinbase Custody, Anchorage, BitGo) may qualify if they meet enhanced insurance, cold-storage, and multi-sig standards.
2. Extended Disclosure Cycle Shift from quarterly to semi-annual reporting, with allowance for lagged reporting during high-volatility periods — dramatically reducing compliance overhead.
3. Tiered Regulation by Asset Type
   • Tier 1: Highly liquid assets (BTC, ETH) → lightest requirements
   • Tier 2: Stablecoins (USDC, USDT) → moderate standards
   • Tier 3: Illiquid/DeFi/NFT tokens → strictest disclosure and valuation rules

IV. Industry Response: Cautious Optimism

• BlackRock: “Lower-cost custody will accelerate institutional Bitcoin & Ethereum allocation.”
• Fidelity: “Reduced disclosure frequency encourages long-term holding rather than forced short-term reporting.”
• Anchorage Digital co-founder: “This is regulatory maturity — prohibition doesn’t eliminate risk; transparency and trust do.”

V. Judicial Pressure Driving Policy Change

Recent court rulings (Ripple secondary-market case, Grayscale ETF lawsuit) have repeatedly limited SEC overreach and forced recognition that crypto cannot be regulated solely under 80-year-old securities frameworks. These judicial checks have created the legal space for the current reform discussions.

VI. New Regulatory Logic: From Defensive Enforcement to Framework Governance

U.S. regulation is evolving from: → “Defensive enforcement” (lawsuits & penalties) → “Framework governance” (clear rules that enable compliant growth)

VII. Institutional Custody Market Snapshot (Sep 2025)

• Total AUM: ~$410 billion (+250% vs 2023)
• Specialist crypto custodians: 62%
• Banks & trust companies: 26%
• Self-custody by funds: 12%

Analysts project the market will exceed $1 trillion within three years if rules are relaxed.

VIII. International Comparison

The U.S. shift may trigger competitive deregulation in Europe to prevent capital flight.

IX. Remaining Risks of Relaxation

1. Regulatory arbitrage in gray areas
2. Reduced disclosure → lower retail transparency
3. Potential political reversal under future administrations
4. Systemic risk if custody remains over-concentrated

SEC insiders emphasize any relaxation will be paired with stricter insurance and contingency requirements.

X. Conclusion: From Wall to Bridge

The SEC is gradually transforming from a gatekeeper that “blocks” innovation into an architect that “guides” institutional capital safely into digital assets. This policy pivot marks the beginning of true mainstream acceptance of crypto within the U.S. financial system. As a former SEC commissioner stated: “The future of regulation is not about banning anyone from entering the market, but about determining who can remain in a safe, transparent, and responsible manner.”

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