tl;dr
The SEC's landmark decision allows state-chartered trust companies to act as crypto custodians, providing regulatory clarity and boosting institutional adoption of digital assets.
**SEC Allows State-Chartered Trust Companies to Serve as Crypto Custodians, Marking a Regulatory Milestone**
In a significant shift for the cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) has clarified that investment advisors may rely on state-chartered trust companies as qualified custodians for digital assets. This decision, outlined in a no-action letter to law firm Simpson Thacher & Bartlett LLP, opens the door for trust companies to hold cryptocurrencies like Bitcoin and Ether alongside traditional assets, offering much-needed regulatory clarity.
### **Regulatory Clarity for Crypto Custody**
The SEC’s letter states that state-chartered trust companies can now be treated as “banks” under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. This classification means they are eligible to hold client funds and securities, including digital assets, provided they meet the definition of a “qualified custodian” under the Advisers Act.
The agency emphasized that registered investment advisers with custody of client assets must use a qualified custodian, and the updated guidance explicitly includes state-chartered trust companies. The letter, labeled a “no-action letter,” assures advisers that the SEC will not take enforcement action if they use these trust companies to hold crypto assets.
### **Senator Lummis Credits Wyoming’s Pioneering Role**
Senator Cynthia Lummis (R-WY) praised the SEC’s decision, highlighting Wyoming’s earlier efforts to establish a regulatory framework for digital assets. In a post on X, she noted that Wyoming’s 2020 no-action relief—which allowed crypto firms to operate under state supervision—was initially met with skepticism from SEC staff.
“Finally, the SEC recognized the rigor and value of Wyoming’s digital asset supervision,” Lummis wrote, underscoring the state’s role in shaping the current regulatory landscape. Wyoming has been a leader in crypto-friendly legislation, attracting blockchain companies and setting a precedent for other states.
### **SEC Official Highlights Need for Clarity**
Brian Daly, Director of the SEC’s Division of Investment Management, explained that the guidance addresses a gap in the regulatory framework. “State-chartered trust companies were not universally seen as eligible custodians for crypto assets,” Daly told *The Block’s* Eleanor Terrett. He added that while the decision is a staff-level letter, it could inform future rulemaking.
The SEC’s move comes amid broader tensions between federal regulators and the crypto industry. Earlier this year, the Federal Reserve and Treasury Department intensified restrictions on banks and regulated entities working with crypto firms through a policy dubbed “Operation Choke Point 2.0.” The SEC’s new stance is seen as a counterbalance, providing clarity and fostering innovation.
### **Implications for the Crypto Industry**
The ruling is a turning point for crypto custody, offering investors and advisers a trusted, regulated option for safeguarding digital assets. By leveraging existing trust infrastructure, the SEC’s decision bridges the gap between traditional finance and the evolving crypto market.
As the industry continues to navigate regulatory challenges, this development signals a growing recognition of the need for flexible, forward-thinking frameworks. With states like Wyoming leading the way and federal agencies beginning to align, the path for institutional adoption of cryptocurrencies appears increasingly viable.
The SEC’s clarification not only addresses immediate needs but also sets a precedent for future regulatory engagement, ensuring that innovation and investor protection can coexist in the digital asset space.