The U.S. Securities and Exchange Commission (SEC) has effectively allowed state-chartered trust companies often referred to as “state trusts” to serve as qualified custodians for cryptocurrency assets held by registered investment advisers (RIAs) and regulated funds.
This comes via a no-action letter issued on September 30, 2025, by the SEC’s Division of Investment Management. The letter provides assurance that the SEC staff will not recommend enforcement action under the custody provisions of the Investment Advisers Act of 1940 or the Investment Company Act of 1940, provided specific conditions are met.
Under federal securities laws, RIAs and funds must use a “qualified custodian” typically defined as a “bank” with fiduciary powers to hold client assets, including crypto. State-chartered trust companies—specialized entities authorized by state banking regulators to hold assets without full deposit-taking powers—have operated in a gray area.
While some states like New York, Wyoming have robust crypto custody frameworks, the SEC had not uniformly recognized them as equivalent to federally chartered banks for crypto holdings. This limited options, especially as traditional banks hesitated due to past SEC guidance like Staff Accounting Bulletin 121 withdrawn earlier in 2025.
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The guidance aligns with the SEC’s more crypto-friendly stance under Chairman Paul Atkins, who launched “Project Crypto” in July 2025 to reduce regulatory burdens and clarify rules. It’s described as an “interim step” toward broader custody rule modernization.
The no-action relief applies specifically to “crypto assets” like Bitcoin, Ethereum and related cash equivalents. State trust companies can be treated as a “bank” for these purposes if they meet these criteria.
State Authorization must be chartered by a state banking authority with explicit permission to custody crypto assets, exercising fiduciary powers similar to national banks. Subject to state examination and supervision; must provide audited financial statements and independent verification of internal controls.
Implement written policies for private key management, asset segregation client assets separate from the trust’s own, and prohibiting unauthorized lending/rehypothecation without client consent.
RIAs/funds must perform ongoing due diligence, confirm the arrangement benefits clients, and ensure custodial agreements include protections like prompt asset return in insolvency.
This does not extend to non-crypto assets and is limited to staff enforcement discretion—not a formal rule change. Boosts institutional adoption by validating custodians like: Coinbase Custody Trust Company (New York-chartered). Ripple’s Standard Custody & Trust (New York). Affiliates of Kraken, Gemini, BitGo, Paxos, and WisdomTree.
This reduces reliance on a handful of federally chartered entities like Anchorage Digital and addresses concentration risks in crypto ETFs.
Industry Praise: Seen as “clarity for the digital asset space” by analysts like James Seyffart of Bloomberg Intelligence.
Wyoming Sen. Cynthia Lummis highlighted her state’s pioneering 2020 framework, which faced earlier SEC criticism. Democratic Commissioner Caroline Crenshaw dissented, arguing it creates a “troubling hole” in uniform standards, bypasses federal chartering processes (e.g., OCC applications), and exposes investors to varying state oversight.
She called for rulemaking over ad-hoc relief.
Could accelerate crypto ETF growth, adviser offerings, and competition among custodians. However, it’s temporary—full reforms are expected via rulemaking.
This development substantiates a pro-innovation pivot at the SEC, but advisers should consult legal experts for compliance.