Key Takeaways

• The SEC issued a no-action letter allowing investment advisers to use state-chartered trust companies as “qualified custodians” for crypto assets.

• The ruling effectively permits certain financial entities, like registered investment advisers and regulated funds operating with a State Trust Company, to hold and manage cryptocurrencies like Bitcoin and Ethereum.

• The move is seen as the latest sign of a regulatory shift toward digital assets, providing greater clarity to the industry following previous restrictive regulatory actions.

SEC Regulatory Shift on Crypto Custody

The U.S. Securities and Exchange Commission (SEC) has issued a no-action letter regarding crypto custody. This letter indicates that the SEC staff will not recommend enforcement action against investment advisers who utilize state-chartered trust companies as “qualified custodians” for crypto assets.

Who Benefits From The New Stance?

The core beneficiaries are organizations operating under the Investment Advisers Act of 1940. The letter states that certain state-chartered trust companies, and some of their by-laws, may now be treated as “banks… with respect to the placement and maintenance of Crypto Assets.”

This development means registered advisers and regulated funds can now seemingly hold and manage major cryptocurrencies, such as Bitcoin and Ethereum, with a state-chartered trust company, similar to how they handle traditional cash holdings.

Providing Clarity for Digital Assets

The no-action letter comes in response to a request from lawyers at Simpson Thacher & Bartlett LLP, who sought confirmation that the SEC would not pursue enforcement actions against these financial entities.

Bloomberg Intelligence analyst James Seyffart called the decision a “textbook example of more clarity for the digital asset space,” noting it’s the kind of regulatory guidance the industry has been seeking for years.

The move is significant because the safe and legal custody of digital assets has long been complicated by existing legal gray areas, a challenge this action aims to mitigate.

Part of a Broader Regulatory Trend

This decision represents the latest step in a warming regulatory environment for crypto firms in the U.S., contrasting with prior efforts like “Operation Choke Point 2.0,” where federal agencies worked to limit the activities regulated institutions could perform for crypto businesses.

Senator Cynthia Lummis praised the SEC’s recognition of state-chartered trust companies, citing Wyoming’s pioneering role in digital asset supervision. By allowing state trust companies—which have implemented sophisticated controls—to act as custodians, the SEC supports the growing crypto market and offers a pathway for financial firms to manage digital assets without undue fear of penalties, provided they adhere to the outlined rules.

Final Thoughts

The SEC’s no-action letter regarding state-chartered trust companies as qualified crypto custodians is a major regulatory milestone. It injects much-needed clarity into the custody of digital assets, expands access for traditional financial players, and signals a pragmatic approach to integrating crypto into the established financial system.

Frequently Asked Questions

What is a “no-action letter” in this context?
It is a letter from the SEC staff indicating they will not recommend enforcement action against a specified party for a particular action.

Which financial entities can use state trusts for crypto custody?
Registered investment advisers and regulated funds operating under the Investment Advisers Act of 1940.

Why is this decision important for the crypto market?
It provides significant regulatory clarity on the legal and safe holding of digital assets, easing the path for more traditional financial entities to enter the market.