Simply put
- The SEC is not planning to take enforcement action against advisors or other entities that may act as custodians for cryptocurrencies.
- This announcement could open doors for more organizations to manage digital assets.
- In July, Chair Paul Adkins unveiled “Project Crypto,” aimed at easing regulatory burdens in the sector.
The US Securities and Exchange Commission stated on Tuesday that it won’t pursue actions against registered investment advisors, crypto fund issuers, and other entities utilizing state characteristics for holding digital assets.
This new guidance responds to inquiries from attorneys who represent financial advisors, potentially paving the way for many organizations to oversee these assets, including affiliates of well-known crypto firms like Coinbase and Ripple.
The SEC’s letter indicates, “Based on your letter, the investment department does not recommend enforcement action… regarding registered advisors treating state trust companies as ‘banks’ for managing crypto assets and related cash equivalents,” provided certain conditions are satisfied by both the advisor and the trust.
The letter reflects a shift from the SEC’s previous stringent stance on cryptocurrencies under former chair Gary Gensler, who aimed to limit the organizations capable of holding digital assets.
In July, current chair Paul Adkins announced “Project Crypto,” an initiative geared towards reducing regulatory burdens in the crypto industry, facilitating the integration of digital assets into the traditional US economy.
The Investment Advisory Act of 1940 mandates that advisors maintain client assets in banks, trusts, or other certified custodians under specific obligations as state trustees. Advocates of cryptocurrency have leveraged this law to facilitate a broader range of initiatives in the sector.
While the letter isn’t a formal rule or regulation—meaning it lacks “legal force or effect” and doesn’t change existing laws—it’s important for ensuring that registered trusts can offer custody services for cryptocurrencies, supported by relevant banking authorities. The SEC has been active in creating policies to safeguard these assets, addressing issues like private key management.
Essentially, the letter details that an advisor’s agreement could require the trust to avoid lending money or using the funds without client consent, while also keeping crypto assets distinct from the state trust company’s other assets.
According to the SEC, “If we find that utilizing a state trust company’s administrative services is in the best interest of the RIA client or regulatory fund and its shareholders, the trust may take on the managerial role.”
This announcement received commendation from Bloomberg ETF analyst James Seyfert, who noted that it represents a “clear textbook example for the digital asset space,” reflecting what the industry has been seeking strongly in recent years.
