The Securities and Exchange Commission’s (SEC’s) Division of Investment Management has issued a no action letter clarifying that state trust companies can serve as custodians for crypto assets held by registered investment advisers and regulated funds. The September 30 letter addresses longstanding uncertainty about whether these entities meet the definition of a “bank” under federal securities laws.
The staff opinion states it would not recommend enforcement action against advisers or funds using state trust companies for digital asset custody and related cash, provided certain conditions are met. However, the letter explicitly notes it “does not provide any legal conclusions on the issues presented” and represents only the staff’s position.
Many of the largest crypto custodians are state chartered trusts, especially New York based, including Coinbase Custody Trust and Paxos Trust. One of the arguments in favor of this stance is that there are relatively few banks with deep experience in the crypto sector. There are even fewer with sophisticated functionality such as supporting staking.
The irony is that a key reason that banks are behind the curve is a previous SEC staff opinion, SAB 121, that prevented banks from engaging. When the SEC first provided a green light for crypto ETFs last year, several people raised concerns about the concentration in a few state chartered custodians that don’t have the rigor and budgets of custodians such as BNY and State Street. These two banks alone provide custody for over $100 trillion in assets, 25 times the size of the crypto sector.
Article continues …
Want the full story? Pro subscribers get complete articles, exclusive industry analysis, and early access to legislative updates that keep you ahead of the competition. Join the professionals who are choosing deeper insights over surface level news.
Image Copyright: Ledger Insights