SEC Greenlights State Trusts as Crypto Custodians in Major Policy Shift

The U.S. Securities and Exchange Commission (SEC) has taken a notable step toward integrating cryptocurrency into traditional finance. On Tuesday, the SEC’s Division of Investment Management issued a no-action letter, signaling that the regulator will not pursue enforcement against registered advisers or funds that use state-chartered trust companies to custody digital assets. This move provides significant clarity for investment firms navigating the uncertain regulatory landscape around crypto custody.

The debate over qualified custodians has long divided regulators. Under former SEC chairs Gary Gensler and Jay Clayton, the commission argued that crypto firms lacked the regulatory safeguards needed to hold client funds. Gensler even advanced a proposal to limit custody options and explicitly sought to exclude major exchanges like Coinbase. Although that proposal was never formally adopted, it created compliance uncertainty for investment advisers by suggesting that most crypto assets would fall under rules requiring qualified custodians.

The SEC’s new leadership under Chairman Paul Atkins is pursuing a more crypto-friendly agenda. Atkins, aligned with President Donald Trump’s pro-digital asset policies, has emphasized establishing clear industry guidelines as a top priority. The no-action letter, while not a formal rule, effectively grants temporary relief by allowing advisers to treat state trust companies as “banks” under existing custody provisions.

Reactions inside the SEC remain split. Commissioner Hester Peirce welcomed the decision, suggesting the rules should evolve to accommodate technologically advanced custodians, including potentially self-custody options for firms. In contrast, Democratic Commissioner Caroline Crenshaw criticized the move, warning that bypassing public input and federal oversight risks fragmenting the market into a “50-state regulatory roulette.”

The decision forms part of Atkins’ broader “Project Crypto” initiative, aimed at shaping comprehensive digital asset regulations. With Congress also advancing legislation on crypto markets, the SEC’s latest step signals a regulatory environment increasingly open to digital assets, though debate over investor protections continues.