SEC opens the door for investment advisers to use state trusts as crypto custodians

In something of a major reversal, the U.S. Securities and Exchange Commission has issued a no-action letter saying that investment advisers can use state-chartered trust companies as qualified custodians for crypto assets, according to a letter on Tuesday.

Particularly, organizations that operate under the Investment Advisers Act of 1940 and some of its by-laws may be treated as "banks... with respect to the placement and maintenance of Crypto Assets and cash and/or cash equivalents reasonably necessary to effect transactions in Crypto Assets."

In other words, certain financial entities — like registered advisers and regulated funds operating with a State Trust Company may seem to be able to hold and manage cryptocurrencies like Bitcoin and Ethereum as they would cold hard cash.

"This is a textbook example of more clarity for the digital asset space," Bloomberg Intelligence analyst James Seyffart said in a post on X. "Exactly the sort of thing the industry was asking for over the last few years. And it keeps coming."

The move represents the latest regulatory thaw between crypto firms and U.S. federal agents. As part of "Operation Choke Point 2.0," for instance, several powerful agencies, including the Federal Reserve, Office of the Comptroller of the Currency, and the U.S Treasury, worked to stamp out how the types of activities regulated agencies could perform for crypto firms.

Monday's letter from Simpson Thacher & Bartlett LLP, dated Sept. 30, 2025, asks the SEC to confirm that it won't take enforcement action against certain financial entities (Registered Advisers and Regulated Funds) if they use a State Trust Company to hold and manage crypto assets.

This move could help clarify which financial firms can safely and legally hold digital assets, which are tricky to manage due to the existing legal gray areas. Simpson Thacher & Bartlett's letter supports the growing crypto market by allowing state Trust Companies, which are well-equipped for this, to serve as custodians without fear of SEC penalties, as long as they follow the outlined rules.

"Encouraged to see @SECGov recognizing state-chartered trust companies as qualified digital asset custodians," Sen. Cynthia Lummis said on X. "WY paved the way in 2020 by issuing landmark no-action relief, & was criticized by SEC staff. They finally recognized the rigor & value of WY's digital asset supervision."