Staff of the U.S. Securities and Exchange Commission have begun enabling investment advisors to use state trust companies to detain cryptocurrency assets.
In a rare, invalid letter, the SEC’s investment management department said Tuesday that it would not recommend that the SEC take enforcement action if an advisor uses a state trust company as a crypto manager.
Law firm Simpson Tacher and Bartlett wrote to the department on Tuesday, hoping to assure that if a registered financial institution, such as a venture capital company, is detained, it is not subject to regulatory enforcement action.
This is the second non-action letter from the SEC this week, a sign of an agency’s handoff approach to crypto enforcement under the Trump administration, pledging to ease regulatory oversight in the sector and attract businesses and projects to the United States.
Provisional steps to broader changes
SEC staff say in the letter that there are procedures designed to protect Crypto and that state trust companies can be used as custodians, provided that advisors and fund managers follow certain standards, such as carrying out due diligence and determining it.
In a statement shared with Cointelegraph, Director of Investment Management, Brian Daly said the letter was “a temporary step towards the long-term modernization of our custody requirements.”
“This remedy unlocks a larger universe of cryptocurrency custody options that are subject to critical protection.”
The SEC said it would propose amending custody rules in its regulatory flex agenda. Under current regulations, the Investment Companies Act and Investment Advisory Act require that client assets be held by a list of qualified custodians, such as banks.
Perth, Analyst, Back Change
SEC Commissioner Hester Perth said the guidance would eliminate the “speculation game” registered advisors and force regulated funds to play while selecting custody entities for crypto assets, eventually becoming “advisory clients and fund shareholders.”
She added that it covers the crypto assets of clients held by registered advisors or crypto assets investments in the regulatory funds covered by their respective custody clauses.
“This moment presents us with the opportunity to consider whether custody requirements applied to registered advisors and regulated funds should be improved and modernized, such as through principled rules.”
Bloomberg ETF analyst James Seyfert praised the decision in a post on Tuesday, calling it “an example of a clearer textbook in the digital assets field. Something the industry has been looking for in the past few years.”
The Pseudonymous Crypto Trader Marty Party also supported the SEC letter, predicting it would lead to “more cryptocurrency managers,” who said it would be “great news of crypto adoption.”
Meanwhile, Wyoming Sen. Cynthia Ramis said that “state-characteristic trust companies have been encouraged to recognize as custodians of qualified digital assets,” pointing out that her state had made a similar move in 2020.
Crenshaw calls letters “nasty”
Caroline Crenshaw, the agency’s sole Democratic chief, criticized the letter, arguing that changes to the existing regime should be made through rulemaking, along with public comments and economic analysis.
Related: SEC plans to allow blockchain-based stock trading amid crypto push: Report
She added the department’s move to an unfair disadvantage, saying, “digging a nasty hole” in existing rules and claiming applicants seeking national charters from the Currency Secretary’s office to provide crypto-supervisory services.
“Today’s actions allow state trust companies to bypass the entire OCC application process where others are in good faith participation,” she said.
“The fundamental principle behind our laws and regulations regarding investment advisors and investment companies’ custody is trust. Determining who to trust as a custodian is an important question in high stakes.”
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