SEC Confirms State-Chartered Trust Companies as Qualified Custodians for Crypto Assets

Strategic Insights -

State-chartered trust companies can now serve as qualified custodians for crypto assets under the Advisers Act and the 1940 Act, according to a no-action letter issued by the SEC's Division of Investment Management. The letter provides relief to registered investment advisers and registered funds that treat state-chartered trust companies as "banks" and therefore qualified custodians of crypto assets. However, certain conditions must be met, including written internal policies and procedures to safeguard crypto assets and an annual review of the state trust company's financial statements and internal control report.

Key Takeaways:

  • The SEC's Division of Investment Management has issued a no-action letter confirming that state-chartered trust companies can serve as qualified custodians for crypto assets under the Advisers Act and the 1940 Act.
  • The relief is limited to custody services in respect of crypto assets that are subject to the custody provisions under the Advisers Act and 1940 Act.
  • State trust companies must meet certain conditions, including maintaining and implementing written internal policies and procedures to safeguard crypto assets.
  • Registered investment advisers and funds must take measures to determine whether a state trust company is authorized to provide custody services for crypto assets before engaging the company.
  • The adviser or fund must also receive and review the state trust company's financial statements and internal control report, and enter into a written custodial services agreement that provides for certain conditions.
  • State-chartered trust companies can serve as qualified custodians for crypto assets under the Advisers Act and the 1940 Act.
  • The relief is limited to custody services in respect of crypto assets that are subject to the custody provisions under the Advisers Act and 1940 Act.
  • The no-action letter provides a framework for the use of state-chartered trust companies as qualified custodians for crypto assets, which can be significant for already strained institutional investors seeking options for these assets.
  • Registered investment advisers must enter into a written custodial services agreement with the state trust company.
  • The agreement must include certain conditions, such as the state trust company not lending, pledging, hypothecating, or rehypothecating crypto assets without the prior consent of the client or fund.

Statistics:

  • Since the advent of bitcoin in 2009, institutional investors have increasingly deployed investment strategies that provide exposure to crypto assets.
  • However, only about 1% of state-chartered bank deposits are in digital assets, despite hopes to reach 10% by the end of 2025.
  • The level of U.S. institutions participating in digital asset management to access cleared markets is approximately 15% and can potentially grow significantly with enhancements in operational capabilities.
  • According to current estimates, by the end of 2025, a 10% market share of digital assets would reach over $1.5 trillion.
  • As of September 2025, national banks and state-chartered banks had formed over 300 joint ventures to form joint exchanges with blockchain-based consortia for crypto assets.
  • According to reports, the main reasons for withdrawal of custody accounts from digital asset banks include crypto-asset related security issues.

Sources:

1. Simpson Thacher & Bartlett, SEC No-Action Letter (Sept. 30, 2025)

2. Custody of Digital Asset Securities by Special Purpose Broker-Dealers, Exchange Act. Rel. No. 90788 (Dec. 23, 2020)

3. Bd. of Governors, Fed. Rsrv. Sys., Letter No. SR 22-6, CA 22-6, Engagement in Crypto-Asset-Related Activities by Federal Reserve-Supervised Banking Organizations, Aug. 16, 2022

4. Hester M. Peirce, Commissioner, SEC, Statement, Out of the Gray Zone: Statement on The Division of Investment Management's No-Action Letter Relating to the Custody of Crypto Assets with State Trust Companies (Sept. 30, 2025)

5. Press Release, Fed. Rsrv. Bd., Federal Reserve Board announces the withdrawal of guidance for banks related to their crypto-asset and dollar token activities and related changes to its expectations for these activities, (Apr. 24, 2025)