On September 30, 2025, the SEC’s Division of Investment Management issued a no-action letter (NAL) that could significantly impact how registered investment advisers (RIAs) and registered funds custody crypto assets. The NAL clarifies that certain state-chartered financial institutions (State Trust Companies) may be treated as “banks” under the custody provisions of both the Investment Advisers Act of 1940 and the Investment Company Act of 1940, provided specific conditions are met.
This relief allows RIAs and registered funds to use State Trust Companies as qualified custodians or specified custodians for crypto assets and related cash or cash equivalents, which is a notable shift in regulatory posture that could expand custody options for digital assets.
Key Conditions
To rely on the relief, firms must meet several compliance requirements:
- Due inquiry and ongoing assessment: Firms must verify initially and annually that the State Trust Company:
- Is authorized by its state banking authority to provide crypto custody services.
- Has written policies and procedures to safeguard crypto assets, including private key management and cybersecurity.
- Has undergone independent audits and SOC 1 or SOC 2 reviews confirming effective custodial controls.
- Written custodial agreements: Agreements must prohibit lending or rehypothecation of crypto assets without client consent and require segregation of client assets from the custodian’s own holdings.
- Material risk disclosures: RIAs must disclose risks to clients, and registered funds must inform their boards of any material risks associated with using State Trust Companies.
- Best interest determination: Firms must reasonably conclude that using a State Trust Company is in the best interest of clients or shareholders.
The NAL only applies to crypto assets and related cash equivalents. All existing custody provisions under the Advisers Act and the Investment Company Act remain in effect.
Diverging Commissioner Views
The NAL has sparked debate within the SEC:
- Commissioner Caroline Crenshaw voiced strong opposition, warning that the relief could “degrade our custody framework” and criticized the lack of uniform oversight for State Trust Companies. She argued that such changes should be pursued through formal rulemaking with public input.
- Commissioner Hester Peirce, on the other hand, welcomed the NAL, emphasizing its role in resolving longstanding ambiguity around the status of State Trust Companies. She noted that the relief supports innovation while maintaining investor protections, particularly for tokenized securities and native crypto assets.
Looking Ahead
The NAL represents a meaningful step toward modernizing crypto custody, but it is not the final word. With the SEC actively considering changes to the custody rule under the Advisers Act, firms should anticipate further developments.
What’s next?
- Potential rulemaking that could reshape custody standards for digital assets.
- Increased scrutiny of State Trust Companies and their regulatory frameworks.
- Growing demand for robust operational controls and cybersecurity practices.
ACA Can Help
As regulatory clarity around crypto custody evolves, firms face new operational and compliance challenges. ACA’s regulatory advisory team is equipped to help RIAs and registered funds interpret and implement the conditions outlined in the NAL.
We offer:
- Due diligence support for evaluating State Trust Companies, including financial statement and SOC report reviews.
- Policy and procedure assessments focused on cybersecurity and private key management.
- Disclosure and documentation guidance to meet best interest and risk disclosure obligations.
- Strategic advisory on integrating crypto custody into broader compliance frameworks.
Our deep expertise in digital asset regulation ensures you stay ahead of the curve, confidently and compliantly.
Contact us to find out how we can help with your crypto compliance requirements.