SEC Staff Permits State Trust Companies as Qualified Crypto Custodians ∞ Regulation

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Briefing

The U.S. Securities and Exchange Commission’s Division of Investment Management issued a no-action letter on September 30, 2025, clarifying that registered investment advisers and funds may treat certain state-chartered trust companies as “banks” for the purpose of custodying crypto assets. This action significantly expands the pool of eligible qualified custodians, streamlining compliance pathways for firms engaging with digital assets under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, provided specific investor protection safeguards are met.

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Context

Prior to this guidance, a notable legal ambiguity existed regarding whether state-chartered trust companies, despite their fiduciary capabilities, satisfied the “bank” definition under federal securities laws, thereby limiting their recognition as qualified custodians for digital assets. This uncertainty posed a significant compliance challenge for investment advisers and funds seeking to integrate crypto assets into their portfolios, as it constrained the operational architecture for secure asset segregation and oversight.

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Analysis

This no-action letter directly impacts business operations by expanding the available infrastructure for digital asset custody, influencing how compliance frameworks are structured. Regulated entities can now integrate state-chartered trust companies into their operational models, provided they conduct rigorous due diligence, establish robust policies for safeguarding crypto assets, and ensure strict segregation of client assets. The relief necessitates updates to internal control reports and risk disclosure protocols, ensuring that the use of these custodians aligns with investor protection obligations. This development facilitates broader institutional participation in the digital asset market by providing a clearer, principles-based pathway for meeting custody requirements.

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Parameters

Issuing Authority ∞ U.S. Securities and Exchange Commission, Division of Investment Management
Action Type ∞ No-Action Letter
Effective Date ∞ September 30, 2025
Legal Frameworks Addressed ∞ Investment Advisers Act of 1940, Investment Company Act of 1940
Targeted Entities ∞ Registered Investment Advisers (RIAs), Registered Investment Companies, Business Development Companies
Custodial Entities ∞ State-chartered trust companies
Key Conditions ∞ Diligence, policies, SOC-1 reports, risk disclosure, segregated custody agreements

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Outlook

This no-action relief establishes a crucial precedent for digital asset custody, signaling a pragmatic shift in regulatory interpretation. While it offers immediate operational clarity, the relief is staff-level guidance and not binding on the full Commission, suggesting potential for future formal rulemaking. The SEC’s Spring 2025 regulatory agenda already includes proposed amendments to custody rules, indicating that this action could inform a more comprehensive, permanent framework, potentially addressing nuanced issues such as self-custody. This measured approach aims to foster innovation within a controlled environment, balancing market evolution with investor protection imperatives.

The SEC Staff’s no-action letter provides essential regulatory clarity, strategically de-risking digital asset custody for institutional players and advancing the industry’s maturation within established financial frameworks.

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