SEC Staff May Allow State Trust Companies to Custody Crypto, Broadening Digital-Asset Custody Options

The SEC’s Division of Investment Management said it will not recommend enforcement action when registered investment advisers use state trust companies as crypto custodians, provided advisers follow due diligence and ￰0￱ guidance expands qualified custody options for client crypto assets while requiring protective ￰1￱ confirms state trust companies can act as crypto custodians when advisers follow specific ￰2￱ is a limited, staff-level no-action assurance pending formal rule changes to custody ￰3￱ debate continues: some policymakers praise the step, while others call for formal ￰4￱ trust companies crypto custody — SEC staff allows advisers to use state-chartered trust companies as crypto custodians; review safeguards and act ￰5￱ trust companies as crypto custodians : The SEC’s Division of Investment Management issued a no-action assurance saying it will not recommend enforcement action if registered advisers use state trust companies to custody crypto, provided advisers meet due-diligence and safeguards requirements and act in clients’ best ￰6￱ are state trust companies as crypto custodians?

State trust companies as crypto custodians are state-chartered entities permitted to hold and safeguard digital asset private keys and related custody infrastructure for registered advisers and regulated ￰7￱ SEC staff’s no-action assurance allows advisers to use these entities if they implement written procedures and perform client-focused due ￰8￱ can advisers use state trust companies to custody cryptocurrency? Advisers may rely on state trust companies when they determine, after due diligence, that using such an entity is in clients’ best ￰9￱ SEC staff conditionally limited enforcement recommendations to cases where the trust company maintains custody safeguards, the adviser documents oversight, and fund managers meet custody provisions of the Investment Company Act and Investment Advisers ￰10￱ Division’s letter frames this as an “interim step to a longer-term modernization of our custody requirements,” according to Division of Investment Management director Brian ￰11￱ staff emphasized procedures designed to safeguard crypto and criteria for adviser ￰12￱ firm Simpson Thacher & Bartlett requested assurances from the SEC that state trust companies could custody cryptocurrency assets.).

Wyoming Senator Cynthia Lummis also expressed encouragement, citing state-level actions beginning in 2020.