SEC Amends Regulations for Funds Investing in Digital Assets to Ensure Fairness, Support Asset Allocation, and Provide Flexibility for Asset Management Companies

The Securities and Exchange Commission (SEC) has revised regulations governing mutual funds and private funds investing in digital assets. The updates aim to promote fairness in providing foreign investment opportunities to high-net-worth investors through securities and asset management companies while supporting fund managers in optimizing asset allocation. The revised regulations are effective immediately.

The SEC has issued 13 notifications concerning the amendments with key points as follows:

(1) Adding Investment Token as an eligible asset for investment with an investment limit similar to that of transferable securities such as stocks and bonds because of similar characteristics and risks.

(2) Allowing the Funds to invest in crypto assets under a risk level appropriate for the types of investors. For the Funds targeting ultra-high net worth investors, they would be allowed to invest in crypto ETFs without any investment limit in order to create equal competition between securities companies and asset management companies. In the case where such Funds invest in crypto assets directly or indirectly via derivatives, the investment must be capped at 20 percent of the NAV.

Meanwhile, the Funds for retail investors would be allowed to have total crypto asset exposure through ETFs or foreign mutual funds, capped at 5 percent of the NAV, for the benefit of asset allocation through fund managers.

(3) Revising relevant regulations to accommodate the establishment and management of Funds investing in DA, for example, asset custody, disclosure of information, appropriate advertising and adjustment of suitability test to cover crypto asset investment, etc.

The notifications concerning the amendments have taken effect on 16 January 2025. The Funds investing in digital assets (DA) under the previous regulations prior to the effective date of the new notifications must comply with the amendments within 90 days from the effective date of the new notifications.