SEC Commissioners at Odds Over Crypto Custody Rules for Advisers and Funds

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Well, it seems like the SEC can’t agree on much these days. Hester Peirce thinks we’re finally getting somewhere with crypto custody rules, while Caroline Crenshaw thinks we’re sailing straight into a storm. Buckle up!

SEC Struggles to Find Middle Ground on Crypto Custody and Investor Protection

The SEC’s commissioners took a stroll down opposite sides of the road last week, all thanks to a new no-action letter from the agency’s Division of Investment Management. This letter says registered investment advisers and regulated funds can keep their precious crypto assets with state-chartered trust companies, as long as these companies are following the law – or at least pretending to. Oh, and they tossed in a little clarification on how custody rules from 1940 apply to digital assets. A nice little gift wrapped in 80 years of bureaucracy.

Commissioner Hester M. Peirce, who seems to think the crypto world has been living in a fog of uncertainty, endorsed the decision. She described it as a “pragmatic” move, which is just a fancy way of saying “finally, some common sense in a sea of confusion.” Here’s what she had to say:

The staff NAL is an encouraging development for registered advisers and regulated funds that invest or want to invest in crypto assets.

Peirce wasn’t exactly thrilled to see the no-action letter making new rules. But she’s content with it, saying it doesn’t actually change who can be a custodian – it just says that state trust companies, if they’re not totally useless, can be included in the list. She did mention that banks – you know, the ones that are federally charmed – could still hold crypto assets if they’re feeling generous. Peirce thinks this clarity brings some much-needed order to the wild, wild west of crypto investing. In fact, she’s all for more rules, but ones that make sense and are based on principles instead of outdated regulations.

Then we’ve got Commissioner Caroline A. Crenshaw, who’s not having it. She’s not impressed with this move at all and thinks the SEC has jumped off the deep end into a pool of investor risk. Her take on the whole situation:

I am struck that we are eroding our rules to pave the way for a new class of custodians who seem readily to admit they do not meet the current standards of our custody regime.

Crenshaw isn’t shy about her concerns, calling the no-action letter weak and poorly thought out. She argues that state trust companies aren’t held to the same standards as federally chartered banks, and this could leave investors holding the bag when things go sideways. And don’t even get her started on the SEC skipping the formal rulemaking process. She says any change this big should involve public debate and a nice, deep economic analysis. Instead, the SEC just gave crypto custodians a golden ticket. Well, isn’t that special?

On the other side of the fence, those in favor of the no-action letter think it’s a step in the right direction. It’s supposed to promote competition, clarify regulations, and start the ball rolling on integrating digital assets into our good old-fashioned securities laws. So, either we’re on the verge of a new financial era, or we’re about to watch everything crash and burn. Only time will tell, folks!

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2025-10-06 00:09