SEC’s New Crypto Custody Move: The Wild West of Regulations?

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In a move that could only be described as regulatory déjà vu, the SEC, on Tuesday, decided to let state trust companies step into the world of crypto custody under the Investment Company Act and the Investment Advisers Act. Yes, you heard that right – the same state entities that were previously not allowed to accept deposits are now trusted with the delicate task of safeguarding investors’ crypto assets. What could possibly go wrong? 😅

The SEC’s no-action letter graciously clears up the nagging question of whether these state-chartered trust companies qualify as “banks” under the Acts. Apparently, they do. Who knew? 🎉

The Crypto Door Swinging Wide Open

To top it off, the SEC has decided that it won’t take action against registered investment advisers or regulated funds that treat these state trust companies as “qualified custodians” for crypto assets. But of course, this comes with conditions – because who doesn’t love a little bureaucracy? These include annual due diligence, custody agreements, risk disclosures, and some vague assurances of “best interest determinations.” As if anyone knows what that actually means. 🙄

According to Brian Daly, Director of the SEC’s Division of Investment Management, the move was necessary because state-chartered trust companies were not universally seen as qualified custodians for crypto assets. It’s always nice when the SEC helps us out with a little “clarity,” right? 🙃

“This is a staff letter, so who knows, this could all change with future rulemaking. But, for now, we’re offering this guidance to help today’s crypto products, today’s crypto managers, and today’s crypto chaos,” Daly told Crypto In America host Eleanor Terrett.

And guess what? This new rule opens the floodgates for more players in the crypto custody market. Names like Coinbase, Ripple, BitGo, and Wisdom Tree are now officially recognized as qualified custodians. All aboard the crypto train! 🚂

Under the new @SECGov no-action letter, investment advisors can now treat Trust companies like Gemini as qualified custodians for crypto assets.

Amazing times ahead! 🔥

– GeminiTrustCo (@GeminiTrustCo) September 30, 2025

In the summer of 2025, SEC Chair Paul Atkins introduced “Project Crypto,” designed to drastically reduce regulatory hurdles for the U.S. crypto industry. His goal? Accelerate innovation and usher digital assets into the economy. Because nothing screams “innovation” like throwing caution to the wind. 🤷‍♂️

The Pushback Begins: SEC’s New Crypto Custody Plan Sparks Debate

But of course, not everyone is on board with this crypto custody free-for-all. SEC Commissioner Caroline Crenshaw, ever the skeptic, slammed the staff letter. She argued that allowing state trust companies, which don’t meet traditional custody standards, to hold crypto assets is a dangerous move. It seems Crenshaw is having none of this regulatory wild west. 🚨

“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, on the other,” she warned. Uh-oh, sounds like someone’s not impressed. 😬

As one of the SEC’s more vocal anti-crypto voices, Crenshaw claimed this move creates “unfair competition” and a “dangerous precedent.” Oh, and don’t forget about the “crypto exceptionalism” part – because who needs to follow traditional rules when you’re dealing with something as volatile as cryptocurrency? 😏

“With limited factual support or legal analysis, this action bores a troubling hole in that regime – and I fear investors’ assets may fall through the cracks,” Crenshaw concluded. Ominous, isn’t it? 😱

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2025-10-02 00:40