SEC No-Action Letter Permits State Trusts to Manage Crypto on Behalf of Clients

The SEC has taken a step that may simplify operations for crypto asset companies. Its Division of Investment Management issued a no-action letter indicating it will not pursue advisers or funds that utilize state-licensed trust companies to manage crypto.

This is quite significant, particularly given the strict environment that has existed until now. It provides firms with greater alternatives for holding digital assets without the fear of regulatory pitfalls.

Details of the No-Action Letter

Here’s what the letter specifies. If a state trust company is correctly established to manage crypto, and it adheres to a set of guidelines, then advisers and funds can engage with it similarly to how they would with a conventional bank for custody purposes.

SEC’S DIVISION OF INVESTMENT MANAGEMENT ISSUES NO-ACTION LETTER ALLOWING INVESTMENT ADVISERS TO USE STATE TRUST COMPANIES AS CRYPTO CUSTODIANS WITH PROPER PROCEDURES. pic.twitter.com/UXmM1q2yGQ

— Flux Charts (@FluxCharts) October 1, 2025

This means the trust must be officially sanctioned to manage crypto, must have documented protections set up, and must maintain client assets completely distinct from its own. Furthermore, it cannot access those assets without explicit approval. The letter doesn’t alter any regulations, though. It merely indicates that the SEC personnel won’t take action against you if you comply with these stipulations.

Importance for Custody Services

This is crucial because up until now, the methods for storing crypto under existing regulations have been quite narrow. Most firms had to engage with banks or broker-dealers, which often isn’t ideal in the context of digital assets.

Numerous crypto-specific custodians do not fit those traditional frameworks. By allowing state trust companies to step in, the SEC is essentially suggesting, “Alright, perhaps there’s another avenue here.” This could pave the way for additional firms to manage custody without overextending themselves.

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SEC’s Required Safeguards

Naturally, there are conditions involved. Advisers must still perform their due diligence. The trust company needs to be correctly licensed and should have robust safeguards for handling items such as private keys.

It must also clearly commit to not borrowing or mixing client assets. All of this needs to be included in the contract. Moreover, advisers are required to determine whether utilizing that trust company is genuinely beneficial for their clients. So yes, there’s flexibility, but it’s not unrestricted.

Responses and Concerns from a Commissioner

Not everyone is celebrating. While some industry stakeholders are pleased to finally see the SEC provide some clarity, others are sounding alarms. Commissioner Caroline Crenshaw expressed strong opposition to it.

She argues that this bypasses the necessary procedure, is devoid of solid data, and could potentially undermine the safeguards intended to protect investors. Her primary concern is that this might result in uneven regulations, leaving clients to bear the consequences.

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Implications for Digital currency Firms

For cryptocurrency firms, this could present a significant opportunity. Particularly for those state-chartered trust companies affiliated with larger entities. If they can meet all the necessary requirements, they might finally enter the custody industry. Numerous firms that were previously excluded might now have a chance. However, they will still need to perform their due diligence and adhere strictly to regulations.

Looking Ahead

So what’s next? This letter may just mark the initial step. We’ll have to monitor if the SEC opts to formalize this into a definitive rule. It will also be intriguing to see how state trust companies respond. Will they enhance their systems and strengthen regulation measures?

And will advisers actually pursue this route? If traditional custodians remain costly or inefficient, we could witness more firms opting for this path. Either way, developments could become quite dynamic.

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