On September 30, 2025, the staff of the SEC’s Division of Investment Management issued a no-action letter permitting registered investment advisers (RIAs) and registered investment companies, including business development companies (registered funds), to use state trust companies to custody crypto assets and related cash and/or cash equivalents (crypto assets), subject to certain conditions. The no-action letter provides further clarity with respect to financial institutions permitted to custody crypto assets and reflects the SEC’s ongoing efforts to provide greater regulatory certainty with respect to crypto assets generally. As previously reported here, the SEC is currently considering broader rulemaking initiatives to address the regulatory framework for crypto assets, including with respect to custody of crypto assets.

The no-action letter seeks to provide clarity as to whether state trust companies would be eligible to serve as custodians of crypto assets for RIAs or registered funds under applicable provisions of the Investment Company Act of 1940 and the Investment Advisers Act of 1940 and the respective rules thereunder. As noted in the incoming letter, as demand for crypto asset investment strategies has grown over the last decade, state trust companies have become critical providers of custody services for crypto assets, as other financial institutions that could provide such services, such as broker-dealers, generally have been deterred from doing so due in part to various federal and state regulatory limitations. Additionally, the incoming letter states that state trust companies have developed a host of controls and procedures to ensure safekeeping of crypto assets in order to address this demand.

Rule 206(4)-2 under the Advisers Act generally requires that RIAs with custody of client funds or securities maintain them with a “qualified custodian,” which includes a “bank” as defined in the Advisers Act. Similarly, Sections 17(f) and 26(a) of the Investment Company Act generally require registered fund securities and assets to be maintained with certain specified custodians, including a “bank” as defined in the Investment Company Act. The term “bank” is similarly defined in both statutes to include a “banking institution” or “trust company” doing business under the laws of any state or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency, and which is supervised and examined by state or federal authority. The incoming letter maintains that the definitions of “bank” under these statutes creates uncertainty in this context, as determining whether a state trust company meets these definitions “inherently involves a facts and circumstances analysis.”

The no-action letter provides that the SEC staff would not recommend enforcement action against an RIA or a registered fund for treating a state trust company as a “bank” under these statutes for purposes of the custody of crypto assets, provided that the following conditions are met:

• Prior to engaging a state trust company and on an annual basis thereafter, the RIA or registered fund, as applicable, has a reasonable basis, after due inquiry, for believing that (1) the state trust company is authorized by the relevant state banking authority to provide custody services for crypto assets and (2) the state trust company maintains and implements written internal policies and procedures reasonably designed to safeguard crypto assets from the risk of theft, loss, misuse and misappropriation and that address certain prescribed topics. The RIA or registered fund is also required to conduct specific due diligence in making such determinations, as further described in the letter;

• The RIA or registered fund enters into, or causes an RIA client to enter into, as applicable, a written custodial services agreement with the state trust company that provides for certain safeguards with respect the crypto assets, including segregation requirements and certain restrictions on the custodian’s use of the assets;

• The RIA discloses to its clients or the registered fund discloses to its board any material risks associated with using state trust companies as custodians of crypto assets; and

• The RIA or registered fund (including its board, as applicable) reasonably determines that the use of the state trust company’s custody services is in the best interest of the RIA client or the registered fund and its shareholders, as applicable.

The SEC staff’s no-action letter, along with the incoming letter, is available here.