SEC Issues No-Action Relief for State Trust Companies as Crypto Custodians

On September 30, 2025, the SEC staff issued a no-action letter offering guidance on the use of state trust companies as custodians for crypto assets. This allows registered investment advisers and regulated funds to treat qualifying state trust companies as permitted custodians, provided specific conditions are met. 

Previously, regulatory uncertainty existed due to the “bank” definition requiring a determination of whether a substantial portion of the entity’s business consists of accepting deposits or exercising fiduciary powers similar to those of national banks. This no-action position significantly clarifies that pathway. 

Conditions for Reliance on This Relief   

To rely on this relief, advisers and funds must:  

1. have a reasonable basis to believe the state trust company is authorized to custody crypto assets and maintains appropriate safeguards; 
2. execute a formal custodial agreement prohibiting lending, pledging, or rehypothecation without consent and ensuring segregation of assets; 
3. disclose material risks to clients or the fund’s board; and 
4. reasonably conclude that using the state trust company is in the best interest of the client or fund. 

Implications for Investment Advisers and Broker-Dealers   

This development reduces barriers for advisers offering crypto-related strategies. It necessitates strengthened diligence processes for crypto custody providers, updated disclosure language, documented “best interest” determinations, and incorporation of SOC-1/SOC-2/financial audit reviews into vendor oversight procedures. 

For an in-depth review of this and a complete analysis of all regulatory updates in the third quarter of 2025, please download our Regulatory Update.