The US regulatory body overseeing financial markets, the Securities and Exchange Commission (SEC), has issued new guidance for investment advisors looking at options for safely keeping cryptocurrency assets.
The SEC’s Investment Management Division has stated they will generally refrain from taking enforcement action against advisors who choose to use state-chartered trust companies for holding digital assets, provided specific protective measures are in place and adhered to.
This clarification was provided in a no-action letter issued in response to an inquiry from the legal firm Simpson Thacher & Bartlett.
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The law firm had inquired whether firms under regulatory oversight, particularly those in the venture capital space, could use state-chartered trust companies for cryptocurrency custody without incurring penalties from the SEC.
The SEC staff indicated they would not object to this practice, provided certain stipulated conditions are met.
For a state trust company to be an acceptable cryptocurrency custodian, it needs to demonstrate robust procedures for the safeguarding of digital assets. Investment advisors must also carefully evaluate the trust company’s operational setup, ensure it aligns with the client’s best interests, and adhere to specific monitoring standards.
This new development arrives as the SEC is already actively evaluating potential modifications to existing custody rules. Current legislation, including the Investment Advisers Act and the Investment Company Act, mandates that client assets be held by qualified custodians, which typically include banks and similar established financial institutions.
SEC Commissioner Hester Peirce commented that this guidance eliminates a degree of uncertainty faced by advisors and funds when selecting custodians for crypto assets. Peirce believes this clarification benefits both clients and fund investors by providing a more defined pathway for compliant cryptocurrency asset management.
On September 30th, the SEC also signaled its intent to avoid enforcement actions related to tokens tied to Decentralized Physical Infrastructure Networks (DePIN), essentially declaring them outside the boundaries of securities law. Want to know more? Read the full story.