The U.S. Securities and Exchange Commission (SEC) has signaled a more welcoming stance toward crypto custody, particularly for firms that have obtained state charters as trust companies. This shift is significant as it includes prominent crypto platforms such as Coinbase and Kraken among the entities potentially eligible for these new provisions.
On Tuesday, the SEC’s Division of Investment Management released a no-action letter, which assures firms that they will not face enforcement actions for allowing SEC-registered advisers and funds to hold digital assets in state-chartered trusts. This development comes after a contentious history of policy debates regarding qualified custodians under previous SEC leadership, particularly during Gary Gensler’s term, where strict conditions were proposed that aimed to limit which firms could manage crypto assets for investment advisers. Gensler’s approach was perceived as an attempt to sideline exchanges like Coinbase, focusing on ensuring the safety and regulatory compliance of entities that handle customer assets.
The current SEC leadership, under Chairman Paul Atkins, appears to be adopting a more crypto-friendly approach, with Atkins stating that developing industry policies is a primary focus. Despite the no-action letter not formally establishing a rule, it alleviates immediate compliance concerns for companies operating in the crypto space. The letter specified that registered advisers and regulated funds could treat state trust companies as “banks” with respect to the safekeeping of crypto assets.
In contrast to the previous administration’s stance, which argued that many crypto firms were inadequate in terms of regulation and safety, Commissioner Hester Peirce highlighted the need for updated custodianship rules for registered investment advisers. She suggested that advanced technology firms might be capable of safely managing their own assets.
However, dissenting voices remain within the SEC. Commissioner Caroline Crenshaw, who previously aligned with Gensler, criticized the no-action relief, stating that it creates a separate regulatory framework for crypto and does not promote a fair market environment. She argued that this piecemeal approach could leave investors vulnerable and complicate regulatory consistency across states. Crenshaw expressed concerns regarding the lack of public commentary and economic analysis accompanying such significant policy shifts, warning that this could contravene established procedural laws.
The SEC’s evolving stance on crypto custody is part of a broader initiative known as Project Crypto, which aims to establish formal regulations for the digital assets market. Meanwhile, Congress is making strides toward comprehensive legislation to regulate the U.S. digital assets landscape, signaling a growing recognition of the importance of establishing clear frameworks for this burgeoning industry.
