SEC staff opened crypto custody path for state trust companies

The Securities and Exchange Commission’s Division of Investment Management issued no-action relief on September 30, 2025 that gave registered investment advisers and regulated funds a conditional path to use state-chartered trust companies for crypto-asset custody.

Under the staff position, the division would not recommend enforcement under specified custody provisions when an adviser or fund treated a qualifying state trust company as a “bank” for holding crypto assets and the cash or cash equivalents reasonably needed to transact in them. The action was consequential because it addressed a threshold institutional question: whether a state-supervised trust company could fit the statutory custody framework even without being a national bank.

The answer was conditional, not categorical. The letter did not approve a specific custodian, declare every state trust company eligible, or change the governing statutes.

The conditions attached to the relief

The staff defined a state trust company for the letter as an entity organized under state law, supervised and examined by a state authority overseeing banks, and permitted to exercise fiduciary powers.

Before hiring one, and again annually, an adviser or fund needed a reasonable basis after due inquiry to believe the company was authorized to custody crypto assets and maintained written safeguards against theft, loss, misuse and misappropriation. The required review included audited financial statements and a recent independent internal-control report addressing custodial controls, including private-key management and cybersecurity.

A written custody agreement also had to segregate client or fund assets from the trust company’s own assets. Lending, pledging or rehypothecating the custodied property required prior written consent and could occur only for the relevant client or fund account. Advisers had to disclose material risks to clients; funds had to disclose them to directors or trustees. The adviser or fund also had to determine that the arrangement served the relevant client, fund and, where applicable, shareholders.

Those requirements made the relief operationally meaningful but narrower than a blanket designation of state trusts as qualified custodians.

A staff position, not a Commission rule

The legal limitation was explicit. The document provided an enforcement position only and no legal conclusion. It said all other custody requirements continued to apply, different facts could produce a different answer, and the Commission had neither approved nor disapproved the letter. The staff statement had no independent legal force and did not amend applicable law.

Its subject-matter scope was also limited. The relief covered crypto assets recorded on a cryptographically secured distributed ledger and related transactional cash or cash equivalents. Commissioner Hester Peirce said on September 30 that the letter addressed crypto assets subject to the custody provisions, including network-native assets and tokenized equity or debt securities when those provisions applied. Her statement represented her own interpretation of the development.

The investor-protection dispute

Commissioner Caroline Crenshaw’s same-day response showed that the institutional significance was contested inside the SEC. She argued that state trust regimes varied, could provide less protection than federal bank supervision, and should not be elevated through no-action relief before formal rulemaking and public economic analysis.

Peirce took the opposite view, arguing that the letter reduced uncertainty for advisers and funds and applied where state trust regulation was materially similar to frameworks governing other permissible custodians.

The verified event-day conclusion lies between those positions. September 30, 2025 expanded the practical custody options available to advisers and regulated funds willing to satisfy the stated conditions, but it did not settle the statutory interpretation through a Commission vote or binding rule.

What remained unresolved on September 30

The record did not identify which firms would rely on the relief, how much crypto they would place with state trusts, or how individual state supervisory regimes would compare in practice. No attributable event-day dataset established an effect on crypto prices, fund flows, custody balances or market share.

Implementation therefore remained custodian-specific and fact-dependent. The immediate change was regulatory posture: SEC investment-management staff offered conditional assurance against recommending enforcement, while leaving formal law, firm-level eligibility and the broader custody rulebook unresolved.