SEC Approves State Trust Firms as Qualified Crypto Custodians

The U.S. Securities and Exchange Commission (SEC) has opened new doors for crypto custody. On Tuesday, the agency’s Division of Investment Management issued a rare no-action letter, stating that investment advisers can now use state-chartered trust companies as qualified custodians for digital assets. The move gives financial advisers long-awaited clarity on how they can hold crypto on behalf of clients.

For years, advisers faced a major roadblock because they were not sure if state trust firms were allowed to hold crypto. Many avoided them out of fear of regulatory penalties. Now the SEC has clarified the rules, confirming that these firms can serve as custodians as long as they have strong safeguards and advisers ensure clients’ assets are properly protected.

More clarity for advisers and fund managers

The letter followed a request from law firm Simpson Thacher & Bartlett, which asked whether venture capital and other advisers could rely on state trust firms to hold crypto for registered financial institutions.

The SEC clarified that these firms qualify, provided the advisers confirm it is in their clients’ best interest. Additionally, fund managers must review procedures for securing digital assets before choosing custodians.

SEC Commissioner Hester Peirce praised the decision. She said the update eliminates the guessing game advisers faced when picking a crypto custodian. Moreover, she noted that it covers both client-held crypto and tokenized securities. She urged modernization of custody requirements through “principles-based rules” that reflect today’s market.

Industry reactions

Industry experts also welcomed the move. Bloomberg ETF analyst James Seyffart called it “a textbook example of more clarity for the digital asset space.” Wyoming Senator Cynthia Lummis added that the SEC finally recognized the rigor of Wyoming’s state trust framework, which pioneered similar relief in 2020.

Brian Daly, Director of the Division of Investment Management, stressed that this letter is only an interim step. “This additional clarity was needed,” he said, noting that full rule-making may follow as the SEC updates custody laws.

The SEC’s latest move lets crypto advisers keep assets with more trusted firms. This change clears long-standing doubts and shows regulators are finally catching up with digital assets.

Also Read: SEC Meets NYSE and ICE to Discuss Rules and Tokenized Stocks