Firm Secures SEC No-Action Letter on State Trust Company Custody for Crypto Assets
In an important development for the asset management industry, the Staff of the U.S. Securities and Exchange Commission’s (SEC) Division of Investment Management issued a no-action letter to Simpson Thacher in response to its request for confirmation that state-chartered trust companies—which are among the most significant providers of crypto asset custodial services—can serve as “qualified custodians” for purposes of Rule 206(4)-2 under the Advisers Act and permissible custodians for purposes of Sections 17(f) and 26(a) of the 1940 Act.
This is the first no-action letter issued by the Division of Investment Management that is directly targeted to the crypto asset space. In the letter, the Division confirmed that it will not recommend that the SEC take enforcement action if a registered investment adviser or registered fund—including a business development company—treats a state-chartered trust company as a “bank” and therefore a qualified/permissible custodian of crypto assets.
The Simpson Thacher no-action letter is a significant step for all types of asset managers who employ or are considering employing crypto asset-related strategies. The development is particularly noteworthy for registered funds, which historically have not invested directly in crypto assets, in part, because of the ambiguity that the letter resolves.
The letter also represents the latest effort of the SEC’s Project Crypto, which Chairman Paul S. Atkins has described as a “Commission-wide initiative to modernize the securities rules and regulations to enable America’s financial markets to move on-chain.”
The Simpson Thacher team on the request included Partners Justin Browder and Brian Christiansen, Counsel Collin Janus, and Associate Michael Passalacqua.