The SEC issued a no-action letter on Sept. 30, allowing investment advisers to use state-chartered trust companies as qualified custodians for crypto assets, opening the door for Ripple, Coinbase, and other digital asset firms to serve registered funds.
The staff guidance clarifies the definition of “bank” under the Investment Advisers Act of 1940 and the Investment Company Act of 1940, addressing uncertainty regarding whether state trust companies meet this definition.
Journalist Eleanor Terrett reported that Brian Daly, Director of the SEC’s Division of Investment Management, told her:
“This additional clarity was needed because state-chartered trust companies were not universally seen as eligible custodians for crypto assets.”
Both statutes require advisers to maintain client assets with qualified custodians, typically banks or trust companies with national fiduciary powers.
Ripple, Coinbase among beneficiaries
The clarity provided by the letter positions companies such as Ripple and Coinbase to become recognized qualified custodians for crypto assets.
These firms operate as state-chartered trust companies but previously faced questions about their eligibility under federal custody requirements.
Bloomberg ETF analyst James Seyffart called the letter “a textbook example of more clarity for the digital asset space” and “exactly the sort of thing the industry was asking for over the last few years.”
Investment advisers must conduct annual reviews confirming that state trust companies maintain policies designed to safeguard crypto assets from theft, loss, and misappropriation.
Requirements to be a custodian
The letter requires advisers to review audited financial statements prepared under GAAP and internal control reports from independent accountants.
Custodial agreements must prohibit lending, pledging, or rehypothecating crypto assets without the client’s consent and require the segregation of client assets from the custodian’s balance sheet.
The guidance applies to state trust companies authorized by state banking authorities to provide crypto custody services.
These institutions face comprehensive regulatory frameworks including licensing requirements, minimum capital standards, periodic examinations, and enforcement authority for non-compliance.
Daly noted the guidance addresses “today’s products, today’s managers, and today’s issues,” though the SEC could address the topic through future rulemaking.
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