The SEC has given state trust companies the ability to act as custodians for crypto assets under the Investment Company Act and the Investment Advisers Act. This decision came in the form of a no-action letter, which means the SEC staff will not recommend enforcement against investment advisers or regulated funds that use state trust companies as qualified custodians for digital assets, as long as they follow certain rules. These conditions include annual due diligence, written custody agreements, risk disclosures, and proof that decisions are made in the best interest of investors.
State trust companies are financial entities created by state law. They are not federally chartered banks and in many cases could not accept deposits. The change now allows them to hold crypto assets and related cash for investors. This move clears up a long-standing question about whether these companies count as “banks” under federal rules when it comes to custody of digital assets.
Supporters of the decision say it opens the door for more players in the crypto custody market. Major companies such as Coinbase, Ripple, BitGo, and WisdomTree already operate in this space through state-chartered custodians like Standard Custody. They can now be recognized as qualified custodians, which expands access for investment funds to store crypto securely.
Brian Daly, Director of the SEC’s Division of Investment Management, said the clarity was needed because state trust companies were not always seen as eligible custodians. He explained that while this is only staff guidance and not a permanent rule, it gives the market direction for today’s products and today’s managers. Daly also noted that future SEC rulemaking could address the topic more formally.
Not everyone at the SEC supports the move. Commissioner Caroline Crenshaw sharply criticized the letter, arguing it weakens investor protections. She said state trust companies do not always meet the traditional standards for custody, which creates a dangerous precedent. Crenshaw warned that lowering standards for crypto custody could lead to unfair competition, crypto exceptionalism, and improper process without enough legal analysis or factual support. She stressed that custody rules protect investors against theft, loss, or misuse of assets, and she fears this change leaves gaps in that protection.
The decision reflects the wider debate in Washington over how to regulate digital assets. On one side are those who want to bring more oversight to crypto while giving investors access to regulated options. On the other are regulators who believe easing rules could expose investors to new risks. With this guidance, state trust companies will now play a larger role in the custody of crypto assets, though the question of long-term rules remains open.
