SEC’s No-Action Letter on Cryptocurrency Custody
The recent debate among U.S. Securities and Exchange Commission (SEC) commissioners has intensified following a new no-action letter regarding the custody of cryptocurrency assets. This letter was issued by the SEC’s Division of Investment Management and allows registered investment advisers and regulated funds to hold digital currencies with specific state-chartered trust companies, providing guidance on the current custody regulations under the Investment Advisers Act of 1940 and the Investment Company Act of 1940.
Support from Commissioner Hester M. Peirce
Commissioner Hester M. Peirce has expressed her support for this move, calling it a necessary and pragmatic clarification for an industry that has long operated under uncertainty. Peirce recognized the no-action letter as a positive development for those looking to navigate the complex landscape of crypto investment. However, she clarified that this does not expand the range of acceptable custodians, but rather confirms that state trust companies can serve this role when following stringent regulatory frameworks.
She explained that registered advisers and regulated funds still have the option to hold crypto assets with other approved custodians, including national and state banks. In her view, the new guidance restores consistency in regulation, which had been muddied by previous uncertainties regarding state-chartered custodians’ compliance with federal law. Peirce advocated for additional refinements to the custody rules, leaning towards a principles-based approach that reflects the realities of the crypto marketplace.
Opposition from Commissioner Caroline A. Crenshaw
On the flip side, Commissioner Caroline A. Crenshaw voiced strong opposition, arguing that the SEC’s latest actions pose a threat to investor protections. She perceives the no-action letter as a significant overreach that undermines established custody standards, cautioning that a new category of custodians is being allowed entry without meeting rigorous existing regulations.
Crenshaw criticized the lack of substantial factual and legal rationale backing the letter, pointing out that it weakens essential statutory protections meant for investors. She highlighted concerns regarding the inadequate oversight of state-chartered trust companies as compared to federally chartered banks, arguing that this discrepancy could leave investors vulnerable to risks. Additionally, Crenshaw rebutted the SEC’s decision to sidestep a formal rulemaking process, stating that such a significant policy change necessitates public input and thorough economic scrutiny.
Supporters’ Perspective
Supporters of the SEC’s no-action letter, however, argue that it fosters competition among custodians and offers increased regulatory clarity, signaling a positive move toward embedding digital assets within the existing financial framework. As the conversation continues, the broader implications for the custody of cryptocurrency assets are likely to be closely monitored by both the SEC and market participants.
