Oct. 20, 2023
the SEC seems to be developing its proposed digital asset custody rules without fully utilizing relevant policy tools and regulatory options. Some examples may include: Regulatory sandboxes - Tools like limited pilots could allow testing oversight approaches before full rollout. Exemptions - Special exemptions for early stage startups or non-profits could limit unintended barriers. Safe harbors - Providing compliance safe harbors could give firms flexibility in meeting rules. Staggered timelines - Phasing in regulations gradually could ease transition burdens on companies. Substitute compliance - Letting firms comply through comparable foreign frameworks during transition period. No action letters - Issuing no-action letters could give compliant firms assurance without full registration. Selective enforcement - Prioritizing enforcement only against material custody breaches could incentivize compliance. Sunset provisions - Adding expiration dates to new rules would force reevaluation after trial period. You're right - proactively integrating supportive policy mechanisms and discretion into the custody framework could make oversight more innovation-friendly while achieving the SEC's investor protection goals.