TLDR
- The SEC has approved state trust companies to act as qualified custodians for crypto assets.
- This decision allows more players to enter the crypto custody market in the US.
- The SEC will not take enforcement action against investment advisers using state trust companies for crypto custody.
- The approval aims to provide greater clarity and expand custody options for crypto assets.
- SEC Commissioner Caroline Crenshaw expressed concerns about potential risks to investor protection.
The SEC’s recent decision opens the door for state trust companies to act as qualified custodians for crypto assets. This move enables non-federally chartered state entities to assume responsibility for holding investors’ cryptocurrency assets. The decision addresses concerns about whether state trust companies qualify as “banks” under the Investment Company Act and Investment Advisers Act.
SEC Approves State Trust Companies for Crypto Custody
Under the new guidance, state trust companies can now serve as custodians for crypto assets. The SEC will not recommend enforcement actions against investment advisers or regulated funds that use these companies for custody. However, certain conditions must be met, such as annual due diligence, custody agreements, and risk disclosures.
“This additional clarity was needed because state-chartered trust companies were not universally seen as eligible custodians for crypto assets,” said Brian Daly, Director of the SEC’s Division of Investment Management. These companies must meet requirements for safeguarding crypto assets and related cash. The SEC’s move is seen as a step forward in legitimizing crypto custody.
As a result, firms like Coinbase, BitGo, and Ripple could expand their custody operations. This also opens opportunities for more players in the crypto custody market. State trust companies now have the chance to handle crypto custody, which could provide broader access for funds to manage crypto assets.
The Pushback Begins
Despite support from some industry players, SEC Commissioner Caroline Crenshaw expressed strong concerns. She criticized the staff letter, arguing that it lowers investor protections. According to Crenshaw, allowing state trust companies to handle crypto custody without meeting traditional standards creates a dangerous precedent.
“The statutes and rules regarding custody are what stand between American investors, on the one hand, and the risk of theft, loss, or misappropriation of their assets,” she said. Crenshaw believes this action undermines investor protection without sufficient legal analysis. She warned that crypto custody, under these conditions, could lead to unfair competition and crypto exceptionalism.
Crenshaw’s concerns reflect broader fears about how these decisions might affect the overall safety of crypto assets. However, the SEC’s new guidance reflects a broader effort to reduce regulatory burdens and accelerate cryptocurrency innovation.
