The U.S. Securities and Exchange Commission (SEC) has issued a new guidance. This allows investment advisers to use state-chartered trust companies as qualified custodians for crypto assets. The move came through a no-action letter after a request from Simpson Thacher & Bartlett LLP.
SEC Guidance Clears Path for Crypto Firms to Act as Custodians
Under the Investment Advisers Act of 1940 as stated in the SEC document, advisers must hold client funds with a qualified custodian. Typically, this can be a national bank or federally recognized trust company. Until now, there was uncertainty about whether state-chartered trust companies fit that definition.
The new SEC guidance confirms they can be treated as “banks” under federal law if certain safeguards are followed. Advisers must confirm internal controls, and check that trust companies undergo regular audits. They must also disclose risks to clients and confirm custody agreements are in the best interest of investors. The SEC is also advancing rules on on-chain stock trading as part of its tokenization push.
This allows leading crypto businesses to engage in more custody activities. As such, Coinbase, Ripple through Standard Custody, BitGo, and WisdomTree, may now perform the role of custodian for registered funds and advisers. This provides regulated markets with a more convenient exposure to crypto and creates more infrastructure for digital assets.
Lawyers Hail SEC Guidance as Milestone for Digital Asset Custody
Brian Daly, Director of the SEC’s Division of Investment Management, said the clarification was needed because state trust companies had not been consistently recognized. The SEC guidance provides additional comfort to funds and advisers seeking to expand into digital asset markets, reflecting how crypto remains a top SEC priority.
Industry lawyers welcomed the move. Justin Browder, a partner at Simpson Thacher, said the SEC’s position offers “important assurances to money managers and funds” and helps sustain investment in the asset class. He credited SEC staff for constructive engagement that made the outcome possible.
The Commission stressed that the letter reflects staff views only. This is not a strict rule and may change in the future. Nonetheless, the SEC guidance marked a considerable achievement in bringing crypto custody into traditional monetary framework.
Advanced protections, such as cold storage, encryption and independent audit, are already available to State-chartered trust companies. Hence, they can easily start offering their services to institutional clients who need to protect their funds based on the new SEC guidance.
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