SEC Staff Seek Feedback on Definition of "Qualified Custodian"
The SEC Division of Investment Management ("Division") is seeking feedback on the definition of "qualified custodian" under IAA Rule 206(4)-2 ("Custody of Funds or Securities of Clients by Investment Advisers," or the "Custody Rule"). The request follows the issuance of a no-action letter to the Wyoming Division of Banking which allows a Wyoming-chartered public trust company to serve as a qualified custodian by virtue of being a "bank" under the Advisers Act.
The Division requested feedback on the criteria that a financial institution must meet to be identified as a "qualified custodian". Specifically, Division staff stated an interest in receiving comments on:
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the extent to which state-chartered trust companies should be treated as qualified custodians;
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the similarities between the custodial services provided by state-chartered trust companies and those provided by other financial institutions, broker-dealers and futures commission merchants;
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the criteria that advisers use to assess an entity's satisfaction of the "qualified custodian" definition under the Custody Rule; and
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how the definition of "qualified custodian" should be liberalized or restricted.
Division staff request responses using the following address: [email protected] with “Custody Rule and Digital Assets” used for the subject line.
Commentary
The Wyoming Division of Banking’s no-action letter took a firm stance regarding digital assets, stating that "[a]s a legal matter, the Division views digital assets in the same light as traditional asset classes, and therefore Wyoming trust companies may properly provide custodial services for virtual currency, digital securities and digital consumer assets." The SEC seems to be taking a slower, measured approach by engaging with the market to determine whether there are specific aspects of digital assets that impact the approach to safeguarding and how their response should be tailored accordingly.