December 10, 2025
Clients, Friends, and Associates:
As we near the end of 2025, we have highlighted in this update certain recent industry developments that will impact many of our clients. We have also developed a checklist to help managers effectively navigate the business and regulatory landscape at the end of this year and also for the coming year. While we strive to present an informative, albeit brief, overview of these topics, we are also available should you have any related questions.
This update includes the following:
- CFM Items
- Q4 Matters
- Annual Compliance & Other Items
- Annual Fund Matters
- Annual Management Company Matters
- Notable Regulatory & Other Items from 2024
- Other Items
- Compliance Calendar
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CFM Items
CoinAlts Fund Symposium. Cole-Frieman & Mallon LLP (“CFM”) was proud to once again serve as a Premier Sponsor of the CoinAlts Fund Symposium, held on October 29, 2025, at the Four Seasons Hotel San Francisco. This year’s event was the most successful and well-attended CoinAlts to date – selling out for the second consecutive year and drawing record participation from fund managers, allocators, investors, and industry leaders. The day featured insightful discussions on the evolving legal and regulatory landscape of digital assets, as well as valuable networking opportunities that continue to define CoinAlts as the anchor event of San Francisco Fund Week. Save the date for 2026 in San Francisco on October 14, 2026, at the Hyatt Regency Embarcadero.
CFM People. We are delighted to welcome Tyler Tschirhart and Jason M. Ross as associates; Tyler joined the firm in September and Jason in early December. We are excited to have them both contributing to the continued growth and success of the CFM team. Please join us in extending Tyler and Jason a warm welcome!
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Q4 Matters
Senate Agricultural Committee Proposes Bipartisan Crypto Market Legislation. The “Creating Legal Accountability and Responsibility in Technology for You” Act (“CLARITY Act”) passed through the U.S. House of Representatives (the “House”) on July 17, 2025. The bill defines a framework for trading digital commodities, designating the Commodity Futures Trading Commission (“CFTC”) as the primary regulator of exchanges, brokers, and dealers, with limited jurisdiction retained by the Securities and Exchange Commission (“SEC”). To qualify for trading, digital commodities must either operate on a mature or decentralized blockchain or meet certain issuer reporting requirements. A Senate discussion draft expanding on the CLARITY Act was released on November 10, 2025, and it would allow for both the CFTC and SEC to regulate digital commodities.
Tax Update: California and San Francisco Sourcing Rules for Asset Managers. The California Franchise Tax Board (“CA FTB”) and the San Francisco Tax Collector (“SF Tax Collector”) have both adopted “look-through” rules that affect how asset management fees are sourced. Both regulations require asset managers to determine where investors are domiciled, not where the manager is located. The CA FTB rule applies for tax years beginning on or after January 1, 2026, and SF Tax Collector’s rule applies for tax years beginning on or after January 1, 2025, respectively.
As a result, asset managers anywhere in the world who manage money for California or San Francisco investors may now have new state and local filing obligations and tax exposure tied to investor domicile. For more details on the regulations, please see our full statement.
SEC 2026 Examination Priorities. The SEC’s Division of Examinations has released its 2026 priorities, emphasizing focus on conflicts of interest, fees and expenses, valuation, marketing practices, and information security and privacy (including the 2024 Reg S‑P amendments), and the use of AI and other emerging technologies in advisory activities. Fund managers and adviser‑affiliated startups should review the SEC’s 2026 Examination Priorities and benchmark their written policies, testing, and disclosures against these focus areas.
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Annual Compliance & Other Items
Annual Privacy Policy Notice. On an annual basis, SEC registered investment advisers (“RIAs”) are required to provide natural person clients with a copy of their privacy policy if: (i) the RIA has disclosed non-public personal information other than in connection with servicing consumer accounts or administering financial products; or (ii) the RIA’s privacy policy has changed. The SEC has provided a model form and accompanying instructions for privacy policies.
Annual Compliance Review. The Chief Compliance Officer (“CCO”) of an SEC RIA must conduct a review of the RIA’s compliance policies and procedures annually. This annual compliance review should be in writing and presented to senior management. CCOs should consider additions, revisions, and updates to the compliance program as may be necessary. We recommend advisers discuss the annual review with their outside counsel or compliance firm to obtain guidance about the review process and a template for the assessment. Conversations regarding the annual review may raise sensitive matters, and advisers should ensure that these discussions are protected by attorney-client privilege. Advisers that are not registered may still wish to review their procedures and/or implement a compliance program as a best practice.
Form ADV Annual Amendment. RIAs or managers filing as exempt reporting advisers (“ERAs”) with the SEC or a state securities authority must file an annual amendment to their Form ADV within 90 days of the end of their fiscal year. For most managers, the Form ADV amendment will be due on March 31, 2026. RIAs must provide a copy of the updated Form ADV Part 2A brochure and Part 2B brochure supplement (or a summary of changes with an offer to provide the complete brochure) to each “client” and, if applicable, Part 3 (Form CRS: Client Relationship Summary) to each “retail investor” with whom the RIA has entered into an investment advisory contract. Note that for advisers who are SEC RIAs or California registered investment advisers (“CA RIAs”) to private investment vehicles, a “client,” for purposes of this rule, refers to the vehicle(s) managed by the adviser and not the underlying investors. State-registered advisers should examine their states’ regulations to determine who constitutes a client. For purposes of the Form ADV Part 3, a “retail investor” means a natural person, or the legal representative of such natural person, who seeks to receive or receives services primarily for personal, family, or household purposes.
Switching to/from SEC Regulation.
SEC Registration. RIAs who no longer qualify for SEC registration as of the time of filing the annual Form ADV amendment must withdraw from SEC registration within 180 days after the end of their fiscal year (the end of June 2026 for most managers) by filing a Form ADV-W. Such managers should consult with legal counsel to determine whether they are required to register in the states in which they conduct business. ERAs or state-level RIAs who report regulatory assets under management on their annual amendment in excess of SEC registration thresholds must register with the SEC within 90 days of filing the annual amendment (the end of June 2026, if the annual amendment is filed on March 31, 2026).
ERAs. Managers who exceed the assets under management thresholds to qualify as an ERA will need to submit a final report as an ERA and apply for registration with the SEC or the relevant state securities authority, as applicable, generally within 90 days after the filing of the annual amendment (the end of June 2026 for most managers, assuming the annual amendment is filed on March 31, 2026).
Custody Rule Annual Audit.
SEC RIAs. SEC RIAs must comply with specific custody procedures, including: (i) maintaining client funds and securities with a qualified custodian; (ii) having a reasonable basis to believe that the qualified custodian sends an account statement to each advisory client at least quarterly; and (iii) undergoing an annual surprise examination conducted by an independent public accountant.
SEC RIAs to pooled investment vehicles may satisfy the custody rule by relying on the audit provision, which generally eliminates both the surprise examination requirement and the obligation to have the qualified custodian send quarterly account statements. Audited financial statements must be prepared for each pooled investment vehicle in accordance with generally accepted accounting principles (“GAAP”) by an independent public accountant registered with the Public Company Accounting Oversight Board (“PCAOB”). Audited financial statements must also be sent to investors in the fund within 120 days after the fund’s fiscal year-end (or for fund-of-fund clients, within 180 days after fiscal year-end). SEC RIAs should review their internal procedures to ensure compliance with the custody rules.
California RIAs. CA RIAs that manage pooled investment vehicles and are deemed to have custody of client assets are also subject to surprise examinations conducted by a certified public accountant. However, CA RIAs may avoid these requirements by engaging a PCAOB-registered auditor to prepare and distribute audited financial statements to all beneficial owners of the pooled investment vehicle, and the Commissioner of the California Department of Financial Protection and Innovation (“DFPI”). Those CA RIAs that do not engage an auditor must, among other things: (i) provide notice of such custody on the Form ADV; (ii) maintain client assets with a qualified custodian; (iii) engage an independent party to act in the best interest of investors to review fees, expenses, and withdrawals; and (iv) retain an independent certified public accountant to conduct surprise examinations of assets.
Other State RIAs. Advisers registered in other states should consult their legal counsel about those states’ specific custody requirements.
California Minimum Net Worth Requirement and Financial Reports.
CA RIAs with Discretion. Every CA RIA (other than those also registered as broker-dealers) that has discretionary authority over client funds or securities, regardless of whether they have custody, must maintain a net worth of at least $10,000 (CA RIAs with custody are subject to heightened minimum net worth requirements discussed further below).
CA RIAs with Custody. Generally, every CA RIA (other than those also registered as broker-dealers) that has custody of client funds or securities must maintain a minimum net worth of $35,000. However, a CA RIA that: (i) is deemed to have custody solely because it acts as the general partner of a limited partnership, or a comparable position for another type of pooled investment vehicle; and (ii) otherwise complies with the California custody rule described above is exempt from the $35,000 minimum (and instead is required to maintain the $10,000 minimum).
Financial Reports. Every CA RIA subject to the above minimum net worth requirements must file certain reports with the DFPI. In addition to annual reports, CA RIAs may be required to file interim reports or reports of financial condition if they fall below certain net worth thresholds.
Annual Re-Certification of CFTC Exemptions. Commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”) that are currently relying on certain exemptions from registration with the CFTC are required to re-certify their eligibility within 60 days of the calendar year-end. A common example includes the 4.13(a)(3) exemption also known as the “de minimis” exemption. CPOs and CTAs currently relying on relevant exemptions should consult with legal counsel to evaluate whether they remain eligible to rely on such exemptions.
CPO and CTA Annual Updates. Registered CPOs and CTAs must prepare and file Annual Questionnaires and Annual Registration Updates with the National Futures Association (“NFA”), as well as submit payment for annual maintenance fees and NFA membership dues. Registered CPOs must also prepare and file their fourth quarter report for each commodity pool on Form CPO-PQR, while CTAs must file their fourth quarter report on Form CTA-PR. Unless eligible to claim relief under CFTC Rule 4.7, registered CPOs and CTAs must update their disclosure documents periodically, as they may not use any document dated more than 12 months prior to the date of its intended use. Disclosure documents that are materially inaccurate or incomplete must be promptly corrected and redistributed to pool participants.
Trade Errors. Managers should ensure that all trade errors are properly addressed pursuant to the managers’ trade errors policies by the end of the year. Documentation of trade errors should be finalized, and if the manager is required to reimburse any of its funds or other clients, it should do so by year-end.
Soft Dollars. Managers that participate in soft dollar programs should make sure that they have addressed any commission balances from the previous year.
Schedule 13G/D Filings. Managers who exercise investment discretion over accounts (including funds and separately managed accounts) that are beneficial owners of 5% or more of a registered voting equity security must report these positions on Schedule 13D or 13G. Passive investors are generally eligible to file the short-form Schedule 13G. The SEC adopted amendments to the Schedule 13D and 13G reporting deadlines which are now in effect. For managers who are also making Section 16 filings, this is an opportune time to review your filings to confirm compliance and anticipate needs for the first quarter. Schedule 13D is required when a manager is ineligible to file Schedule 13G and is due five days after acquiring more than 5% beneficial ownership of a registered voting equity security. Any amendments to Schedule 13D must be filed within two business days. For Schedule 13G filers that are qualified institutional investors, the initial filing must be completed at the earlier of: (i) 45 days after the end of the calendar quarter in which the filer’s beneficial ownership exceeds 5% at quarter-end; or (ii) five business days after the end of the first month in which the filer’s beneficial ownership exceeds 10% at month-end. For Schedule 13G filers that are passive investors, the initial filing must be completed within five business days after acquiring more than 5% beneficial ownership. For Schedule 13G filers that are exempt investors, the initial filing must be completed within 45 days after the end of the calendar quarter in which the filer’s beneficial ownership exceeds 5% at quarter-end. To the extent there are any material changes to the information last reported, an amendment to Schedule 13G must be filed within 45 days after the end of the calendar quarter. Qualified institutional investors will need to file an amendment to Schedule 13G: (i) within five business days after the end of the first month in which the filer’s beneficial ownership exceeds 10% at month-end; and (ii) thereafter, within five business days after the end of any month in which the filer’s month-end beneficial ownership increases or decreases by more than 5%. Passive investors will need to file an amendment to Schedule 13G: (i) within two business days after acquiring greater than 10% beneficial ownership; and (ii) thereafter, within two business days after the filer’s beneficial ownership increases or decreases by more than 5%.
Section 16 Filings. Section 16 filings are required for “corporate insiders” (including beneficial owners of 10% or more of a registered voting equity security). An initial Form 3 is due within 10 days after becoming an “insider”; Form 4 reports ownership changes and is due by the end of the second business day after an ownership change; and Form 5 reports any transactions that should have been reported earlier on a Form 4 or were eligible for deferred reporting and is due within 45 days after the end of each fiscal year.
Form 13F. A manager must file a Form 13F if it exercises investment discretion with respect to $100 million or more in certain “Section 13F securities” within 45 days after the end of the year in which the manager reaches the $100 million filing threshold. The SEC lists the securities subject to 13F reporting on its website.
Rule 13f-2 and Form SHO. Institutional investment managers that engage in short sales of equity securities that meet or exceed certain regulatory thresholds for a given equity security in a given calendar month must file a Form SHO within 14 calendar days after the end of each calendar month, providing certain information about those short positions. Equity securities for the purpose of Rule 13f-2 include exchange-listed and over-the-counter equity securities, exchange-traded funds, certain derivatives and options, warrants, and other convertibles. Managers must make a determination as to whether a Form SHO needs to be filed on a month-by-month basis. The SEC has provided a temporary exemption from compliance with Rule 13f-2 and Form SHO reporting from February 7, 2025 and ending January 2, 2026. Therefore, Form SHO reports for the January 2026 reporting period would be required to be filed within 14 calendar days after the end of January 2026.
Form 13H. Managers who meet one of the SEC’s large trader thresholds (generally, managers whose transactions in exchange-listed securities equal or exceed two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month) are required to file an initial Form 13H with the SEC within 10 days of crossing a threshold. Large traders also need to amend Form 13H annually within 45 days of the end of the year. In addition, changes to the information on Form 13H will require interim amendments following the calendar quarter in which the change occurred.
Form PF. Managers to private funds that are either registered with the SEC or required to be registered with the SEC and that have at least $150 million in regulatory assets under management (“RAUM”) must file a Form PF. Private advisers with less than $1.5 billion in RAUM must file Form PF annually within 120 days of their fiscal year-end. Private advisers with $1.5 billion or more in RAUM must file Form PF within 60 days of the end of each fiscal quarter.
Form MA. Managers that provide advice on municipal financial products are considered “municipal advisors” by the SEC and must file a Form MA annually, within 90 days of their fiscal year-end.
SEC Form D. Form D filings for most funds need to be amended annually, on or before the anniversary of the most recently filed Form D. Copies of Form D are publicly available on the SEC’s EDGAR website.
Blue Sky Filings. On an annual basis, a manager should review its blue sky filings for each state to make sure it has met any initial and renewal filing requirements. Several states impose late fees or reject late filings altogether. Accordingly, it is critical to stay on top of filing deadlines for both new investors and renewals. We also recommend that managers review blue sky filing submission requirements. Many states permit blue sky filings to be filed electronically through the Electronic Filing Depository (“EFD”) system, and certain states will only accept filings through EFD.
IARD Annual Fees. Preliminary annual renewal fees for state-registered and SEC-registered investment advisers are due on December 8, 2025. Failure to submit electronic payments by the deadline may result in registrations terminating due to a “failure to renew.” If you have not already done so, you should submit full payment into your Renewal Account by E-Bill, check, or wire as soon as possible.
Pay-to-Play and Lobbyist Rules. SEC rules disqualify investment advisers, their key personnel, and placement agents acting on their behalf from seeking to be engaged by a governmental client if they have made certain political contributions. State and local governments have similar rules, including California, which requires internal sales professionals who meet the definition of “placement agents” (people who act for compensation as finders, solicitors, marketers, consultants, brokers, or other intermediaries in connection with offering or selling investment advisory services to a state public retirement system in California) to register with the state as lobbyists and comply with California lobbyist reporting and regulatory requirements. Note that managers offering or selling investment advisory services to local government entities must register as lobbyists in the applicable cities and counties. State laws on lobbyist registration differ significantly, so managers should carefully review reporting requirements in the states in which they operate to make sure they comply with the relevant rules.
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Annual Fund Matters
New Issue Status. On an annual basis, managers need to confirm or reconfirm the eligibility of investors that participate in initial public offerings, or new issues, pursuant to both Financial Industry Regulatory Authority, Inc. (“FINRA”) Rules 5130 and 5131. Most managers reconfirm investor eligibility via negative consent (i.e., investors are informed of their status on file with the manager and are asked to notify the manager of any changes), whereby a failure to respond by any investor operates as consent to its current status.
ERISA Status. Given the significant problems that can occur from not properly tracking ERISA investors in private funds, we recommend that managers confirm or reconfirm on an annual basis the ERISA status of their investors. This is particularly important for managers that track the underlying percentage of ERISA funds for each investor, with respect to each class of interests in a pooled investment vehicle. Investment Managers who advise ERISA plan asset funds under the qualified plan asset manager (“QPAM”) exemption should be aware of the amendments to the QPAM exemption. For additional information on the amendments to the QPAM exemption, please refer to the section “Qualified Plan Asset Manager Updates” below.
Wash Sales. Managers should carefully manage wash sales for year-end. Failure to do so could result in book/tax differences for investors. Certain dealers can provide managers with swap strategies to manage wash sales, including basket total return swaps and split strike forward conversion. These strategies should be considered carefully to make sure they are consistent with the investment objectives of the fund.
Redemption Management. Managers with significant redemptions at the end of the year should carefully manage unwinding positions to minimize transaction costs in the current year (that could impact performance) and prevent transaction costs from impacting remaining investors in the next year. When closing funds or managed accounts, managers should pay careful attention to the liquidation procedures in the fund constituent documents and the managed account agreement.
NAV Triggers and Waivers. Managers should promptly seek waivers of any applicable termination events specified in a fund’s International Swaps and Derivatives Association (“ISDA”) or other counterparty agreement that may be triggered by redemptions, performance, or a combination of both at the end of the year (NAV declines are common counterparty agreement termination events).
Fund Expenses. Managers should wrap up all fund expenses for 2025 if they have not already done so. In particular, managers should contact their outside legal counsel to obtain accurate and up-to-date information about legal expenses for inclusion in the NAV for year-end performance.
Electronic Schedule K-1s. The Internal Revenue Service (“IRS”) authorizes partnerships and limited liability companies taxed as partnerships to issue Schedule K-1s to investors solely by electronic means, provided the partnership has received the investors’ affirmative consent. States may have different rules regarding electronic K-1s, and partnerships should check with their counsel whether they may be required to send hard copy state K-1s. Partnerships must also provide each investor with specific disclosures that include a description of the hardware and software necessary to access the electronic K-1s, how long the consent is effective, and the procedures for withdrawing the consent. If you would like to send K-1s to your investors electronically, you should discuss your options with your service providers.
“Bad Actor” Recertification Requirement. A security offering cannot rely on the Rule 506 safe harbor from SEC registration if the issuer or its “covered persons” are “bad actors.” Fund managers must determine whether they are subject to the bad actor disqualification any time they are offering or selling securities in reliance on Rule 506. The SEC has advised that an issuer may reasonably rely on a covered person’s agreement to provide notice of a potential or actual bad actor triggering event pursuant to contractual covenants, bylaw requirements, or undertakings in a questionnaire or certification. However, if an offering is continuous, delayed, or long-lived, issuers must periodically update their factual inquiry through a bring-down of representations, questionnaires, certifications, negative consent letters, and reexamination of public databases or other means, depending on the circumstances. Fund managers should consult with counsel to determine how frequently such an update is required. As a matter of practice, most fund managers should perform these updates at least annually.
U.S. Foreign Account Tax Compliance Act (“FATCA”). Funds should monitor their compliance with FATCA. Generally, FATCA reports are due to the IRS on March 31, 2026, or September 30, 2026, depending on where the fund is domiciled. However, reports may be required by an earlier date for jurisdictions that are parties to intergovernmental agreements (“IGAs”) with the U.S. Additionally, the U.S. may require that reports be submitted through the appropriate local tax authority in the applicable IGA jurisdiction, rather than the IRS. Given the varying FATCA requirements applicable to different jurisdictions, managers should review and confirm the specific FATCA reporting requirements that may apply. As a reminder, we strongly encourage managers to file the required reports and notifications, even if they already missed previous deadlines. Applicable jurisdictions may be increasing enforcement and monitoring of FATCA reporting and imposing penalties for each day late.
Common Reporting Standard (“CRS”). Funds should also monitor their compliance with the Organisation for Economic Cooperation and Development’s CRS. All “Financial Institutions” in the British Virgin Islands and the Cayman Islands must register with the respective jurisdiction’s Tax Information Authority and submit various reports with the applicable regulator via the associated online portal. Managers to funds domiciled in other jurisdictions should also confirm whether any CRS reporting will be required in such jurisdictions and the procedures required to enroll and file annual reports. We recommend managers contact their tax advisors to stay on top of the U.S. FATCA and CRS requirements and avoid potential penalties.
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Annual Management Company Matters
Management Company Expenses. Managers who distribute profits annually should attempt to address management company expenses in the year they are incurred. If ownership or profit percentages are adjusted at the end of the year, a failure to manage expenses could significantly impact the economics of the partnership or the management company.
Employee Reviews. An effective annual review process is vital to reduce the risk of employment-related litigation and protect the management company in the event of such litigation. Moreover, it is an opportunity to provide context for bonuses, compensation adjustments, employee goals, and other employee-facing matters at the firm. It is never too late to put an annual review process in place.
Compensation Planning. In the fund industry, and the financial services industry in general, the end of the year is the appropriate time to adjust compensation programs. Because much of a manager’s revenue is tied to annual income from incentive fees, any changes to the management company structure, affiliated partnerships, or any shadow equity programs should be effective on the first of the year. Partnership agreements and operating agreements should be appropriately updated to reflect any such changes.
Insurance. If a manager carries director and officer or other liability insurance, the policy should be reviewed annually to ensure that the manager has provided notice to the carrier of all claims and all potential claims. Newly launched funds should also be added to the policy as necessary.
Other Tax Considerations. Fund managers should assess their overall tax position and consider several steps to optimize tax liability. Several steps are available to optimize tax liability, including: (i) changing the incentive fee to an incentive allocation; (ii) use of stock-settled stock appreciation rights; (iii) if appropriate, terminating swaps and realizing net losses; (iv) making a Section 481(a) election under the Internal Revenue Code of 1986, as amended (“the Code”); (v) making a Section 475 election under the Code; and (vi) making charitable contributions. Managers should consult legal and tax professionals to evaluate whether any of these options are appropriate.
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Notable Regulatory & Other Items from 2025
SEC Matters
SEC and CFTC Announce Further Extended Compliance Date for Amendments to Form PF. The SEC and CFTC announced on September 17 that the compliance date for the new Form PF amendments has been extended to October 1, 2026.
SEC Issues No-Action Letter on Rule 506(c) Offerings. On March 12, 2025, the SEC’s Division of Corporation Finance issued a no-action letter that provides a new safe harbor for Rule 506(c) offerings. The new guidance simplifies the rule’s accredited investor verification requirements, provided three conditions are met: (i) investors must represent their investment is not being financed by a third party specifically for this investment; (ii) minimum investment thresholds must be met ($1 million for entities, $200,000 for natural persons); and (iii) and the issuer must have no actual knowledge that a purchaser is not an accredited investor or has financed the investment. We anticipate this may make Rule 506(c) offerings more prevalent, especially for private funds that previously found verification requirements to be a roadblock. This no-action letter is particularly important in today’s environment where fund managers increasingly engage in public outreach through social media, podcasts, and other channels.
SEC Statements on Digital Assets. The SEC’s Division of Corporation Finance recently issued four separate statements on digital assets covering Meme Coins, Stablecoins, Protocol Staking, and the offering and registration of securities in crypto asset markets. Regarding Covered Stablecoins and Meme Coins, the Division has indicated that the purchase and sale of these assets do not qualify as the purchase or sale of securities under federal securities laws. Regarding Protocol Staking, the Division clarified its view that certain “staking” activities are not securities transactions within the scope of the federal securities laws. Regarding crypto asset registration requirements, the SEC provided guidance on Securities Act registration filings.
Compliance Date Extension for Investment Company Act “Names Rule.” The SEC announced a six-month extension for compliance with the “Names Rule,” which requires investment advisers to use names for their registered investment companies that align with the companies’ investment focus and risks. The large fund groups compliance date has been extended from December 11, 2025, to June 11, 2026, and the compliance date for smaller fund groups was extended from June 11, 2026, to December 11, 2026.
SEC Issues No-Action Letter Regarding State Trust Companies as Qualified Custodians for Digital Assets. On September 30, 2025, the SEC’s Division of Investment Management issued a no-action letter stating that it would not recommend enforcement action under Section 206(4) of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), or Sections 17(f) and 26(a) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), if a registered investment adviser or registered fund treats a State Trust Company as a “bank” for purposes of acting as a qualified custodian for crypto assets and related cash, provided certain conditions are met.
This development is significant as it broadens the universe of qualified custodians available for digital asset managers, while simultaneously heightening the diligence and documentation expectations placed on these advisers and their funds.
The letter requires advisers and funds to: (i) conduct initial and annual due diligence to confirm the trust company is authorized by its state banking regulator to provide custody services; (ii) review the company’s written policies and procedures for safeguarding crypto assets, including private-key management and cybersecurity; (iii) obtain and evaluate the company’s audited financial statements and internal-control reports (e.g., SOC-1 or SOC-2); (iv) enter into a written custodial agreement prohibiting lending, pledging, or rehypothecation of assets; (v) ensure that client assets are fully segregated from the custodian’s own assets; and (vi) provide appropriate disclosure to clients or fund boards and determine that the arrangement is in their best interest.
SEC Updates Disclosure Standards for Crypto Asset Exchange-Traded Products (“ETPs”). On July 1, 2025, the SEC’s Division of Corporation Finance released a staff statement addressing the application of the Securities Act and the Exchange Act to the registration and offering of crypto asset ETPs, generally structured as trusts holding spot crypto assets or related derivatives. The statement sets out disclosure expectations across a range of areas, including: (i) the prospectus cover page and summary; (ii) management and conflict of interest disclosures; and (iii) financial statements. Issuers are advised to tailor disclosures to the specifics of their product and to provide a clear, comprehensive discussion of risks. The SEC’s guidance makes clear that ETPs extending beyond spot Bitcoin or Ethereum will face heightened scrutiny, highlighting the need for issuers to ensure disclosures are thorough and product-specific.
CFTC Matters
CFTC Withdraws Swap Execution Facility Registration Advisory. The Division of Market Oversight of the CFTC withdrew its Swap Execution Facility Registration Advisory (the “Advisory”), restoring the pre-Advisory regulatory framework for swap execution facility registration requirements.
Digital Asset Matters
SEC Rescinds Staff Accounting Bulletin 121. In January 2025, the SEC rescinded Staff Accounting Bulletin 121 (“SAB 121”), which suggested that financial institutions report client digital assets held in custody as balance sheet liabilities. The new guidance, Staff Accounting Bulletin 122 (“SAB 122”), eliminates this digital asset-specific treatment and brings these institutions under standard accounting practices. Under SAB 122, financial institutions need only consider the risk of loss of such assets, calculated using their own data and risk assessments consistent with existing Financial Accounting Standards Board and International Accounting Standards guidance.
SEC Announces New Digital Asset Task Force. On January 21, 2025, the SEC’s Acting Chairman, Mark T. Uyeda, launched a new task force to develop an improved regulatory framework for digital assets. This initiative aims to address the SEC’s previous approach of using enforcement actions to regulate the digital asset industry. The task force will focus on establishing clear guidelines and creating practical pathways for companies to register with the SEC.
Department of Justice Issues Memorandum on Changes to Digital Asset Enforcement. The Office of the Deputy Attorney General issued a memorandum signaling a departure from previous litigation and enforcement actions that were “weaponized against digital assets.” The Justice Department will no longer target any “virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or unwitting violations of regulations” unless these services explicitly victimize investors or use these services to further criminal offenses.
Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”) Signed into Legislation. On July 18, 2025, President Trump signed the GENIUS Act, marking the United States’ first federal and major framework for stablecoins. The GENIUS Act limits issuance to approved banks, Office of the Comptroller of the Currency (“OCC”)-qualified nonbanks, and state-licensed issuers. Stablecoins must be fully backed on a 1:1 basis and subject to monthly audits, with yield-bearing products prohibited. To protect consumers, the GENIUS Act gives stablecoin holders top priority in insolvency proceedings. The GENIUS Act also imposes strict AML and sanctions requirements. It takes effect in January 2027, with full compliance required by July 2028.
White House Issues Digital Asset Report. On July 30, 2025, the White House released its digital asset report, which sets out a new U.S. strategy for digital financial technology. Among the report’s priorities are clear rules for stablecoins, support for self-custody, technology-neutral oversight of banking and DeFi, modernized AML tools such as digital identity and blockchain analytics, and improved tax guidance.
State Privacy Act Rules
Round-Up on State Consumer Privacy Law. Several states enacted comprehensive data privacy statutes generally consistent with earlier consumer data privacy laws, which provide consumers with similar rights to request, delete, know, etc. Covered businesses also have broadly consistent obligations concerning the personal information they collect.
Startup and fund managers should review these developments if they have clients with consumer‑facing products, investor portals, or marketing sites, and as such may require updates to their privacy programs, website notices, and data processing addenda.
A few notable updates in the privacy space are as follows:
- Delaware: The Delaware Personal Data Privacy Act went into effect on January 1, 2025 and applies to entities that control or process data of at least 35,000 Delaware consumers.
- Colorado: The Colorado legislature made amendments to the Colorado Privacy Act (the “CPA”) related to biometric data and minors’ online activity.
- Minnesota: The Minnesota Consumer Data Privacy Act (the “MNCDPA”) specifically excludes individuals acting in a commercial employment context and “technology providers” from the definition of “consumer” for purposes of the MNCDPA.
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Other Items
Final U.S. Outbound Investment Rules for Private Fund Managers and Limited Partners. The Treasury Department’s final rule on outbound investment screening established new restrictions on U.S. investments in Chinese and Chinese-controlled companies involving semiconductors/microelectronics, quantum information technologies, and artificial intelligence. The rule applies to U.S. persons and their controlled foreign entities, and covers various types of transactions involving covered foreign persons. U.S. fund managers and U.S. LPs considering new or follow‑on investments in these sectors should incorporate outbound‑investment screening into their deal diligence, and those with existing exposures should evaluate whether post‑effective‑date capital deployments could trigger notification or prohibition under the rule.
New York’s Legislature Continues Push to Ban Non-Competes. On February 10, 2025, the New York Senate introduced a bill to ban most non-compete agreements in the state, but includes key exceptions for most “Highly Compensated Individuals” earning a minimum of $500,000 annually and for non-competes related to business sales when the seller owns at least 15% of the business.
House Introduces Bill to Broaden the Definition of “Accredited Investor.” On May 13, 2025, the House proposed broadening the definition of an “accredited investor” by enabling individuals to qualify not only on the basis of income or net worth, but also by passing a certification examination devised by the SEC.
Financial Crimes Enforcement Network (“FinCEN”) Delays AML Rule for Investment Advisers. On September 4, 2024, FinCEN finalized a rule extending the Bank Secrecy Act’s AML/CFT requirements to most registered investment advisers and exempt reporting advisers. The rule, initially set to take effect on January 1, 2026, requires advisers to adopt written AML programs, designate compliance officers, and conduct training and audits. On August 5, 2025, FinCEN stated that implementation would be postponed until January 1, 2028.
House Bill Proposes to Expand the Definition of “Qualifying Investments” for Venture Capital Advisers. On July 16, 2025, the House introduced a bill to revise the definition of “qualifying investment” under the Advisers Act for venture capital fund advisers. It would require the SEC to include equity securities issued by qualifying portfolio companies (whether acquired directly or secondarily) and investments in other venture capital funds within that definition.
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Compliance Calendar
As you plan your regulatory compliance timeline for the coming months, please keep the following dates in mind:
December 8, 2025
- Annual Renewal Payments Due for Preliminary Statement Issued in E-bill for Registration/Notice Filings. Payment can be made through FINRA Firm Gateway.
December 19, 2025
- Final day to enroll entities that require a Form D, 13F, 13H, or 13G Filing into the EDGAR Next Filing System.
January 30, 2026
- “Annex IV” AIFMD filing.
February 17, 2026
- Form 13F Quarterly Filing. Filing is for Calendar Quarter that ended December 31, 2025, and should generally be submitted within 45 days of quarter end.
- Form 13H Quarterly Filing for Changes. Filing is for Calendar Quarter that ended December 31, 2025, and should generally be submitted within 45 days of quarter end.
- Form 13G Filing for Qualified Institutional Investors and Exempt Investors. Filing is for Calendar Quarter that ended December 31, 2025, and should generally be submitted within 45 days of quarter end.
- First filing deadline for new Form SHO (short position reporting) is if one of the regulatory thresholds is crossed in the month of January 2026. Thereafter, a Form SHO must be filed within 14 days of the end of any calendar month in which a short position regulatory threshold is crossed.
March 1, 2026
- Deadline for annual affirmation of NFA/CFTC exemptions. Exemptions must be affirmed within 60 days of Calendar Year end or exemptions will be withdrawn by the NFA.
March 31, 2026
- Form ADV Annual Update Amendment. Deadline to update and file Form ADV Parts 1, 2A, 2B (and Form CRS, if applicable).
Periodic
- Fund Managers should perform “Bad Actor” certifications annually.
- Form D and Blue Sky Filings should be current.
- CPO/CTA Annual Questionnaires must be submitted annually, and promptly upon material information changes, through the NFA Annual Questionnaire system.
Consult our complete Compliance Calendar for all 2025 critical dates as you plan your regulatory compliance timeline for the year.
Please contact us with any questions or assistance regarding compliance, registration, or planning issues on any of the above topics.
Karl Cole-Frieman, Bart Mallon, John T. Araneo, Brett Bunnell, Garret Filler, Scott Kitchens, Kevin Leiske, Frank J. Martin, Lilly Palmer, Daniel Payne, David Rothschild, Bill Samuels, Tony Wise, and Alex Yastremski
Cole-Frieman & Mallon LLP (CFM) is a leading investment management law firm known for providing top-tier, innovative, and collaborative legal solutions for complex financial services matters. Headquartered in San Francisco, CFM services start-up investment managers, multibillion-dollar funds, and everything in between. The firm provides a full suite of legal services to private funds and their managers across a diverse range of asset classes, including fund formation, regulatory compliance, counterparty documentation (digital and traditional prime brokerage, ISDA, repo, and vendor agreements), employment and compensation matters, and routine business matters. CFM is particularly well known for its pioneering work with digital asset funds and their managers. The firm’s corporate and intellectual property (IP) practice groups advise founders, management teams, and investors during all stages of a business’s lifecycle including fundraising, M&A, governance, IP, employment, tax, and regulatory compliance for service and product launches. CFM also publishes the prominent Hedge Fund Law Blog. For more information, please add us on LinkedIn, follow us on X, and visit us at colefrieman.com.