On September 30, 2025, the U.S. Securities and Exchange Commission’s (SEC) Division of Investment Management issued a significant no-action letter, providing new clarity for the custody of crypto assets. The letter states that the staff would not recommend enforcement action against registered investment advisers and funds for using state-chartered trust companies to custody cryptocurrencies, provided they meet specific conditions. This move is seen as an interim step that broadens the universe of permissible custodians, potentially easing institutional entry into digital asset markets.
Scope and Conditions
The no-action letter provides crucial guidance but is not a blanket approval. It offers assurance specifically for the custody of “Crypto Assets”, defined as digital representations of value recorded on a cryptographically secured distributed ledger, and related cash equivalents. To benefit from this position, advisers and funds must adhere to several key conditions designed to protect investors.
Prior to engagement and on an annual basis, the adviser must have a reasonable basis for believing that the state trust company is authorized by its state banking authority to provide crypto custody services. They must also review the trust company’s audited financial statements and an internal control report (such as a SOC-1 or SOC-2) from an independent accountant to verify that controls are effective for safeguarding assets.
Furthermore, a written custodial agreement must be in place. This agreement must explicitly prohibit the trust company from lending or re-hypothecating the crypto assets without the client’s prior written consent. It must also require that all client assets be segregated from the custodian’s own assets. Finally, the registered adviser must determine that using the state trust company is in the best interest of their client or fund and disclose any material risks associated with this choice.
Market Response and Implications
The decision has elicited mixed reactions, highlighting a shift in the SEC’s approach under new leadership while also revealing internal divisions. Pro-crypto Commissioner Hester Peirce welcomed the clarity, stating it ends a “guessing game” for advisers and funds and will “benefit advisory clients and fund shareholders”. Bloomberg ETF analyst James Seyffart applauded the move as a “textbook example of more clarity for the digital asset space”.
However, Democratic Commissioner Caroline Crenshaw strongly dissented, arguing that the action “bores a troubling hole” in the existing custody framework. She criticized the process, contending that a change of this magnitude should be executed through formal rulemaking with public comment and economic analysis, rather than through a staff no-action letter. She also expressed concern that it creates an unlevel playing field, allowing state trust companies to bypass the more rigorous federal chartering process pursued by others.
For the market, the immediate implication is a significant expansion of potential custody options. This notably includes affiliates of major crypto firms like Coinbase and Kraken, which operate as state-chartered trusts. By reducing a key operational hurdle, the letter may accelerate institutional adoption of cryptocurrencies.
It is crucial to recognize that this is a staff position, not a formal SEC rule or law. The letter itself is an “interim step”, and the SEC has indicated that longer-term modernization of custody requirements through formal rulemaking is still to come. This means the current framework provides near-term operational certainty but could be altered by future SEC action.
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