SEC staff put a federal caveat on Wyoming’s crypto-custody opinion

The staff of the Securities and Exchange Commission’s Division of Investment Management, consulting with the agency’s FinHub staff, warned on November 9, 2020 that Wyoming’s recognition of a state-chartered digital-asset custodian did not settle the question under federal securities law.

The statement responded to an October 23, 2020 no-action letter from the Wyoming Division of Banking concerning Two Ocean Trust, a non-depository public trust company based in Jackson. Wyoming had concluded that Two Ocean could custody digital and traditional assets and, on the facts presented, could qualify as a “bank” and therefore a “qualified custodian” under the Investment Advisers Act and the SEC’s Custody Rule.

SEC staff did not overturn Wyoming’s decision or declare that Two Ocean failed the federal test. It instead stressed that neither the Commission nor its staff was bound by a state regulator’s interpretation. The result was a meaningful but unresolved boundary: Wyoming could authorize and supervise the company under state law, while federal treatment remained dependent on a separate analysis.

What Wyoming had decided

Wyoming’s letter said Two Ocean could custody virtual currency and tokenized securities under state law. Its qualified-custodian opinion rested on the company exercising genuine fiduciary powers, involving discretion, as a substantial portion of its business—one route through which a trust company could fit the Advisers Act’s definition of a bank.

The state determination was expressly company-specific. Wyoming said it did not establish that every non-depository trust company was a bank or qualified custodian. It also warned that the conclusion could change if Two Ocean shifted toward custody-only or other non-discretionary services.

That qualification mattered because SEC-registered investment advisers generally must maintain client funds and securities with a qualified custodian when the Custody Rule applies. For digital assets, the question affected whether advisers could use emerging state-chartered institutions rather than established banks, registered broker-dealers or futures commission merchants.

Federal staff kept the question open

The November 9 statement emphasized that qualified-custodian status required a facts-and-circumstances analysis. SEC staff pointed to the safeguarding function performed by custodians and said eligible institutions were expected to possess characteristics associated with extensive regulation and oversight.

Rather than issuing definitive relief, the staff requested public input. Its questions asked whether state-chartered trust companies offered protections comparable to banks, broker-dealers and futures commission merchants; whether their services created gaps or improvements in client-asset protection; and how advisers determined whether a provider met the rule.

Staff also asked whether digital assets required different custodial qualities from other asset classes and whether regulation should prescribe those qualities or use a principles-based approach. Those questions showed that the dispute was larger than Two Ocean. It concerned how cryptographic-key control, asset safeguarding and state trust charters should fit a federal rule written around traditional financial institutions.

The statement itself was staff guidance, not a Commission rule or order. It created no new legal obligation, and the SEC had neither approved nor disapproved its contents. Accordingly, it should not be read as federal enforcement relief, a prohibition on Two Ocean’s business or a final determination about all state trust companies.

Why the boundary mattered

Wyoming’s initiative offered a possible institutional route into digital assets, but the SEC response limited how confidently advisers could treat the state opinion as a nationwide federal answer. The episode illustrated the fragmented oversight facing digital-asset businesses: authorization by a prudential state regulator did not automatically resolve obligations administered by a federal securities regulator.

No cryptocurrency price, return, volume or market-capitalization claim is made here. The regulatory records establish the custody dispute but do not support attributing a particular market move to the November 9 statement.

Later context

The SEC’s current archive records that the November 9, 2020 staff statement was withdrawn on May 6, 2025. That later withdrawal does not change what the statement communicated on its original issue date.