SEC No-Action Relief for State Trust Companies Custodying Digital Assets

The SEC is beginning to align its custody framework for digital assets with industry practice.

The SEC’s Division of Investment Management has issued a no-action letter confirming that certain state-chartered trust companies may serve as qualified custodians for digital assets and related cash equivalents under the Investment Advisers Act and the Investment Company Act.

This means that registered investment advisers and funds can now custody crypto assets with eligible state trust companies, entities the SEC staff is now willing to treat as “banks” for custody purposes.

The Core of the Relief

Under the Advisers Act’s custody rule and related provisions of the 1940 Act, client funds and securities must be maintained with a qualified custodian, generally defined as a bank or broker-dealer.

Until now, whether a state trust company could meet that definition was uncertain. This no-action relief resolves that question, at least for entities that meet rigorous operational, oversight, and reporting standards.

The SEC’s letter conditions relief on extensive due diligence and investor protection safeguards, including:

1. Initial and annual assessments of the trust company’s custodial capabilities,

2. Policies reasonably designed to safeguard crypto assets,

3. Audited financials and SOC-1 or equivalent control reports,

4. Full risk disclosure to clients or fund boards, and

5. Written custody agreements that prohibit rehypothecation and require segregation of client assets.

The staff emphasized that this relief is fact-specific, a trust company that fails to meet these standards or materially changes its operations could lose eligibility.

Industry Context

In reality, the industry has been moving in this direction for years. State-chartered trust companies, especially those formed under frameworks like New York’s Limited Purpose Trust Charter, have been performing bank-like custody functions for digital assets since at least 2018.

These charters were originally designed to offer a bank-like structure without requiring a full depository license, a model that proved both more accessible for crypto firms and more attractive for states looking to bring digital asset business within their regulatory perimeter.

The SEC’s no-action relief effectively acknowledges that reality, legitimizing a structure that has already functioned responsibly under state oversight.

Where Things Stand

For RIAs and funds, this provides long-awaited clarity, and an actionable path to compliant crypto custody.

Broker-dealers, however, remain in limbo. The SEC has maintained that there’s no legal prohibition on broker-dealers holding crypto, but in practice, none have yet cleared FINRA’s approval process outside of the Special Purpose Broker-Dealer model.

Broker-dealers will likely remain in a holding pattern until the SEC revisits its custody rule in upcoming rulemaking.

About Me

I’m Braeden Anderson, Partner at Gesmer Updegrove LLP, where I focus on securities, regulatory, and digital asset law. My work helps innovators navigate complex SEC, FINRA, and CFTC frameworks while staying true to their vision.

If you’re building in fintech or crypto and want to make sure you’re scaling the right way, reach out. I love helping founders grow.

Source

https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-investment-management-staff-no-action-interpretive-letters/simpsonthacherbartlett093025

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