1/ FASCINATING MOVE by SEC on whether a trust company qualifies as a bank under its rules. This enforcement action doesn't pertain to #crypto specifically but it applies broadly to the key question--does a trust co qualify as a bank under SEC custody rule?
sec.gov/enforce/33-108…
2/ Answer was a resounding "NO" in this case--the trust co didn't qualify for exemptions that apply to banks bc trust co didn't exercise "substantial investment authority." This is a KEY POINT--a trust co that doesn't act as a fiduciary is NOT A BANK under SEC's rules.
3/ This is one of the big reasons why #Wyoming created #SPDI bank charter--bc trust cos are prob not qualified custodians under SEC rules. To be a bank under SEC rules custodian must either (1) take deposits or (2) act as fiduciary. Trust cos can't take deposits (only banks can).
4/ So, to be a qualified custodian, the trust co MUST ACT AS A FIDUCIARY. That's exactly the issue that the SEC raised in this enforcement action against a trust co today. What does it mean to be a fiduciary? Simply put, the trust co must exercise discretion over customer assets.
5/ How many US #crypto custodians that have trust company charters are "exercising discretion over customer assets?" I know of ONLY ONE that meets this standard.
What does this mean for #crypto? It means trust cos that act as custodians in US mkt will need to get bank charters.
6/ Thankfully, #Wyoming's #SPDI charter is available! 🤠 It has been open for applicants for a year now.
Fascinating dissent from @HesterPeirce. She makes some very good points here:
sec.gov/news/public-st…
7/ This topic has been a fault line in the US #crypto regulatory landscape for a while. If a state-chartered trust co doesn't qualify as a bank under the SEC's rules but is claiming a bank's exemptions as if it were, whose job is it to enforce that-the SEC or the state regulator?
8/ Well today SEC answered that question via enforcement action against a state-chartered trust co. Folks-clearest way to be treated as a bank under SEC's rules is actually to be a bank! Thankfully that option is avail to #crypto industry thx to #Wyoming's SPDI. NOT LEGAL ADVICE!
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