Blockchain Legal Resource

On September 29, 2025, staff in the SEC’s Division of Investment Management issued no-action relief for certain crypto asset custodians. Specifically, the relief will, under certain circumstances, allow SEC-registered investment advisers (Registered Advisers), registered investment companies and business development companies (collectively, Regulated Funds) to treat a state-chartered trust company as a “bank” (for custody purposes) with respect to crypto assets and related cash or cash equivalents, without fear of enforcement under the SEC’s custody rules.

Under SEC rules, Registered Advisers and Regulated Funds generally must use a qualified custodian to hold client funds or securities. Certain banks are eligible to serve as qualified custodians. National banks, federal savings associations and state banks that are members of the Federal Reserve system are presumptively qualified custodians. A trust company chartered under state law permitted to exercise fiduciary powers (a State Trust Company), must, however, satisfy a number of objective and subjective conditions, including the requirement that “a substantial portion of its business must consist of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Office of the Comptroller of the Currency.”  

The number of institutions providing crypto asset custody services to Registered Advisers and Regulated Funds has not kept pace with market demand for various reasons, including uncertainty for State Trust Companies as to whether they satisfy the requirement of exercising fiduciary powers similar to national banks.  The SEC sought public comment on this issue in 2020, but took no further regulatory action.

Under the SEC staff’s no-action letter, a Registered Adviser or Regulated Fund may treat a State Trust Company as a “bank” for custody purposes with respect to the placement and maintenance of Crypto Assets and Related Cash and/or Cash Equivalents, provided that:

• Prior to engaging the State Trust Company, and on an annual basis, the Registered Adviser or Regulated Fund, as applicable, has a reasonable basis, after due inquiry, for believing that:
  • the State Trust Company is authorized by the relevant State Banking Authority to provide custody services for Crypto Assets and Related Cash and/or Cash Equivalents; and
  • the State Trust Company maintains and implements written internal policies and procedures reasonably designed to safeguard Crypto Assets and Related Cash and/or Cash Equivalents from the risk of theft, loss, misuse, and misappropriation, with such policies and procedures addressing, among other topics, private key management and cybersecurity. In making such a determination, the Registered Adviser or Regulated Fund:
    • receives and reviews the State Trust Company’s most recent annual financial statements and confirms that such financial statements have been subject to an audit by an independent public accountant and have been prepared in accordance with Generally Accepted Accounting Principles (GAAP); and
    • receives and reviews the State Trust Company’s most recent written internal control report prepared by an independent public accountant during the current or prior calendar year (e.g., SOC-1 report or SOC-2 report) and confirms that such internal control report contains an opinion of such independent public accountant that controls have been placed in operation as of a specific date and are suitably designed and are operating effectively to meet control objectives relating to custodial services, including the safeguarding of Crypto Assets and Related Cash and/or Cash Equivalents during the year.

• The Registered Adviser or Regulated Fund, as applicable, enters into, or causes an RIA Client to enter into, as applicable, a written custodial services agreement with the State Trust Company, which provides that:
  • the State Trust Company will not, directly or indirectly, lend, pledge, hypothecate, or rehypothecate any Crypto Assets (or Related Cash and/or Cash Equivalents) held in custody for the RIA Client or Regulated Fund, as applicable, without the prior written consent of the RIA Client or Regulated Fund, and then only for the account of such RIA Client or Regulated Fund; and
  • all Crypto Assets (and Related Cash and/or Cash Equivalents) held in custody for the RIA Client or Regulated Fund, as applicable, will be segregated from the State Trust Company’s assets.
• The Registered Adviser discloses to its RIA Clients (in the case of a Registered Adviser) or the Regulated Fund discloses to the members of its board of directors or trustees (in the case of a Regulated Fund, as applicable) any material risks associated with using State Trust Companies as custodians of Crypto Assets (and Related Cash and/or Cash Equivalents).
• The Registered Adviser (with respect to an RIA Client) or the Regulated Fund (and, as applicable, its board of directors or trustees), reasonably determines that the use of the State Trust Company’s custody services is in the best interest of the RIA Client or Regulated Fund and its shareholders, as applicable.

For these purposes:

“Cash and/or Cash Equivalents” refers to cash and/or cash equivalents reasonably necessary to effect transactions in Crypto Assets.

“Crypto Assets” refers to assets that are digital representations of value that are recorded on a cryptographically secured distributed ledger. 

“RIA Clients” are clients that themselves are SEC-registered investment advisers.

“State Banking Authority” means a state authority having supervision over banks.

SEC Commissioner Peirce issued a statement supportive of the staff no-action letter.