SEC Staff Issues No-Action Relief Permitting Use of State-Chartered Trust Companies as Qualified Custodians of Digital Assets

The Division of Investment Management of the U.S. Securities and Exchange Commission (the Division) issued a no-action letter on September 30, 2025, confirming that registered investment advisers (RIAs) and registered investment companies may treat certain state-chartered trust companies¹ as “banks” for purposes of maintaining custody of crypto-assets and related cash or cash equivalents.²³ The staff said that it would not recommend enforcement action under the Investment Advisers Act of 1940 (the Advisers Act) or the Investment Company Act of 1940 (the 1940 Act) if an RIA, a registered fund, or a business development company treats a state-chartered trust company as a “bank” and therefore an institution permitted to custody assets under the Advisers Act and the 1940 Act.

Background

Sections 17(f) and 26(a) of the 1940 Act generally require registered funds to place and maintain securities and similar investments with certain specified custodians, primarily “banks” as defined in Section 2(a)(5) of the 1940 Act. Similarly, Rule 206(4)-2 under the Advisers Act (referred to as the “custody rule”) requires any RIA that has custody of client “funds or securities” to maintain those assets with a “qualified custodian,” which is defined to include a “bank” as defined in Section 202(a)(2) of the Advisers Act.

Whether a state-chartered trust company meets the definition of “bank” has long been the subject of debate and often depends on the facts and circumstances.⁴ The Advisers Act and 1940 Act define “bank” to include “trust companies” incorporated under state law provided that a substantial portion of their business consists of receiving deposits or exercising fiduciary powers comparable to those of national banks, that they are subject to supervision by an appropriate state or federal authority, and that they are not operated for the purpose of evading the Advisers Act or the 1940 Act.

What Is a “Bank”?

Without expressly addressing the issue of whether a particular state trust company’s activities are substantially similar to those of a national bank, the Division acknowledged that these institutions are now “critical providers” of custody services for crypto assets and related cash and/or cash equivalents, and the demand for the custody services for digital assets has grown considerably. The staff emphasized the increasing sophistication, regulatory oversight, and systemic importance of state-chartered trust companies, many of which now function at a level comparable to national banks.

Conditions

The Division expressly conditioned the no-action relief on advisers and funds satisfying certain procedural and investor protection safeguards. Among them:

• Diligence and Oversight. The adviser or fund must conduct an initial and annual assessment of the trust company’s ability to provide custodial services consistent with investor protection obligations.
• Policies and Procedures. Following its due diligence, the adviser or fund must believe that the trust company has adopted and maintains policies reasonably designed to safeguard cryptoassets.
• Financial Statements and Controls. The trust company must provide audited financial statements prepared under generally accepted accounting principles and a System and Organization Controls (SOC-1) or equivalent internal control report.
• Risk Disclosure. Advisers and funds must disclose to clients or fund boards the material risks of using a state-chartered trust company for custody and must determine that doing so is in the best interest of the client or fund.
• Custody Agreement. A written custody agreement with the trust company must (1) include protections against unauthorized use, rehypothecation, or pledging of assets without consent and (2) provide that all cryptoassets and related cash held in custody for the RIA client or fund will be segregated from the trust company’s assets.

The staff underscored that its relief is fact-specific; a departure from these conditions, or a change in the trust company’s operations, could alter the staff’s view.

Our Take

• An Important but Expected Development. The relief provides long-sought clarity for advisers and funds wishing to engage in digital asset strategies while relying on state trust companies as custodians.
• A Principles-Based, not Technology-Based, Approach. The relief involves a principles-based approach to safekeeping of digital assets, requiring efforts and oversight to protect against theft, loss, or misuse of digital assets. Notably, the relief does not establish technology requirements, which could quickly become outdated.
• Remaining Crypto Self-Custody Questions. The relief does not directly address whether an investment adviser or investment company can maintain self-custody but offers a framework for allowing what may essentially involve self-custody.
• Future Rulemaking Likely. The SEC’s most recent regulatory agenda (spring 2025) includes custody rule amendments, indicating that more comprehensive rulemaking is on the horizon.⁵ We expect and hope that proposed rulemaking will address the self-custody issue following a similar approach that balances the need for innovative custody solutions with investor protection concerns.

¹ A “state trust company” refers to a legal entity organized under state law that is (i) supervised and examined by a state authority having supervision over banks and (ii) permitted to exercise fiduciary powers under applicable state law.
² https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-investment-management-staff-no-action-interpretive-letters/simpsonthacherbartlett093025.
³ In this context, “cash and/or cash equivalents” means money or very liquid assets (like short-term investments) maintained in connection with the purchase, sale, or settlement of cryptoassets.
⁴ The industry has long desired clarity around the treatment of state-chartered trust companies as qualified custodians, particularly in the context of custody of digital assets. In 2020, the Wyoming Division of Banking issued guidance stating that it believed that Wyoming state-chartered public trust companies satisfy the definition of a qualified custodian and thus may custody digital assets. Shortly thereafter, the Division, in consultation with SEC Strategic Hub for Innovation and Financial Technology staff, responded with a public statement expressing skepticism of Wyoming’ s position and sought input from the public on whether state-chartered institutions should be considered banks for purposes of the custody rule. In May 2025, the Division withdrew this guidance, paving the way for the current no-action letter.
⁵ Spring 2025 Unified Agenda of Regulatory and Deregulatory Actions, available at https://www.reginfo.gov/public/do/eAgendaMain.