The SEC issued a no action letter that lets registered advisers and funds place crypto assets with state chartered trust companies. The letter widens the list of allowed custodians and shifts work for managers, state trusts plus compliance staff. The agency states that the move cuts uncertainty and invites institutions into digital assets.
The Division of Investment Management confirms that a state chartered trust now satisfies custody rules under the Investment Advisers Act but also the Investment Company Act, and a fund need not use a federal bank.
SEC takes preliminary step to expand universe of crypto custody
The adviser must obtain proof that the state banking regulator has chartered the trust, read its audited financials and review an independent report on its controls.
The trust must keep private keys secure, hold client assets separate from its own and refrain from rehypothecation unless the client signs off.
Commissioner Hester Peirce calls the letter a source of clarity. Commissioner Caroline Crenshaw dissents, arguing that separate treatment for crypto assets sets a double standard as well as raises investor risk. Chair Paul Atkins ties the letter to “Project Crypto,” an agency effort to update rules and let institutions in while keeping protections.
Rehypothecation means a custodian pledges a client’s asset for its own obligations — the letter bans it without written consent.
Key points include deeper due diligence, audited controls, key protection and segregation, and split commissioner views.
The letter gives temporary relief only: broader ETF and framework decisions are scheduled for summer 2025. Managers or compliance officers must now rewrite custody procedures to match the letter and watch for formal rules.
