The staff of the US Securities and Exchange Commission has opened the door for investment advisers to utilize state trust companies for the custody of cryptocurrency assets.
In a unique no-action letter, the SEC’s Division of Investment Management announced on Tuesday that it would not recommend enforcement action against advisers who employ state trust companies as crypto custodians.
Law firm Simpson Thacher & Bartlett had submitted a letter to the Division on Tuesday, seeking assurances that registered financial entities, like venture capital firms, would not face enforcement action for custodial roles involving crypto assets.
This marks the second no-action letter issued by the SEC this week, reflecting the agency’s lenient stance on crypto enforcement during the Trump administration, which aims to reduce regulatory burdens on the sector to attract businesses and projects to the US.
Interim step to broader changes
SEC staff indicated in the letter that state trust companies may act as custodians, contingent upon having procedures to safeguard crypto, and advisers and fund managers adhering to specific criteria, including due diligence and ensuring it is in their clients’ best interests.
Brian Daly, director of the Division of Investment Management, stated in a release to Cointelegraph that the letter represents an “interim step toward a longer-term modernization of our custody requirements.”
“This relief unlocks a broader array of crypto custody options, subject to essential safeguards.”
The SEC announced in its regulatory agenda that it will propose updates to custody rules. Currently, the Investment Company Act and the Investment Advisers Act stipulate that client assets must be held by specified qualified custodians, such as banks.
Peirce, analysts, back change
SEC Commissioner Hester Peirce remarked that the guidance removes the “guessing game” faced by registered advisers and regulated funds when selecting an entity for crypto asset custody, ultimately to the benefit of advisory clients and fund shareholders.
She noted that it pertains to client crypto assets held by registered advisers or crypto asset investments of regulated funds that are subject to relevant custody provisions, including tokenized securities.
“This moment also offers an opportunity to assess whether the custody regulations for registered advisers and regulated funds should be enhanced and made more modern, potentially through principles-based rules.”
Bloomberg ETF analyst James Seyffart praised the decision in a post on X, describing it as a “textbook example of increased clarity for the digital asset sector. Precisely the type of advancement the industry has sought over recent years.”
Pseudonymous crypto trader Marty Party also supported the SEC’s letter, predicting it would lead to “many more crypto custodians,” which they believe is “excellent news for crypto adoption.”
Wyoming Senator Cynthia Lummis expressed that she was “pleased to see the SEC acknowledging state-chartered trust companies as eligible digital asset custodians,” and also highlighted that her state made a similar move in 2020, which was criticized by the Biden-era SEC.
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She noted that the Division’s decision “creates a concerning void” in the existing regulations, unfairly disadvantaging applicants seeking national charters from the Office of the Comptroller of the Currency to provide crypto custody services.
“With today’s action, state trust companies can circumvent the entire OCC application process that others are conscientiously completing,” she remarked.
“The fundamental principle underlying our statutes and rules concerning investment adviser and investment company custody is trust. Determining whom to rely on as a custodian is a significant and critical decision.”
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