SEC clears path for Ripple, Coinbase, BitGo to qualify as custodians

The U.S. Securities and Exchange Commission has opened the door for Ripple, Coinbase, and BitGo to act as qualified custodians for crypto assets.

On Sept. 30, the SEC’s Division of Investment Management issued a no-action letter in response to a request from Simpson Thacher & Bartlett LLP.

The guidance allows investment advisers to use state-chartered trust companies as custodians under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. While not a formal rule, the staff letter means the agency will not pursue enforcement if advisers follow the outlined conditions.

Conditions for qualification

To be eligible, state-chartered trusts must be governed by a U.S. state banking authority, such as the Division of Banking in South Dakota or the Department of Financial Services in New York.

They must also offer independent control reports, audited financial statements that comply with GAAP, and custodial agreements that forbid rehypothecation of client assets without consent.

Additional safeguards include keeping client assets off the custodian’s balance sheet and allowing periodic due diligence checks, including surprise audits. Advisers must also show that choosing such a custodian is in the best interest of clients or shareholders.

Impact on major crypto firms

The letter clears a path for several firms already operating state-chartered trusts. Coinbase Custody Trust Company in New York manages over $90 billion in assets, while BitGo Trust Company in South Dakota oversees $64 billion. Ripple, through its Standard Custody & Trust Company, acquired in 2023, can now extend custody services tied to its institutional strategy.

The decision provides long-sought clarity in a space where crypto firms were often sidelined in favor of traditional custodians, such as BNY Mellon or Fidelity. Analysts say the move could expand the number of regulated options available to registered investment advisers and funds.

This change makes it easier for institutions to own digital assets and could lead to more money flowing into exchange-traded funds and other regulated products. However, the relief is still restricted to state-chartered trusts that satisfy SEC requirements. The landscape may be further altered by future rulemaking.