The SEC issued a no-action letter on September 30, providing clarity on the eligibility of state-chartered trust companies as custodians for crypto assets. This decision opens doors for Ripple, Coinbase, BitGo, and other digital asset firms to qualify as custodians for registered funds. The guidance resolves ongoing confusion regarding the definition of a “bank” under the Investment Advisers Act and the Investment Company Act.
The SEC’s new guidance positions Ripple and Coinbase to serve as qualified custodians for crypto assets. Both companies, operating as state-chartered trust companies, faced challenges regarding their eligibility under federal custody requirements. Brian Daly, Director of the SEC’s Division of Investment Management, emphasized that “this additional clarity was needed because state-chartered trust companies were not universally seen as eligible custodians for crypto assets.”
The letter addresses uncertainty by confirming that state trust companies can act as custodians for digital assets. The SEC’s move aligns with the growing recognition of state-chartered trust companies as legitimate players in the crypto custody sector. Ripple, Coinbase, and other firms previously ineligible can now meet the legal requirements for serving clients’ crypto assets.
The SEC letter outlines several requirements for investment advisers to use state-chartered trust companies as custodians for crypto assets. Investment advisers must conduct annual reviews to ensure that custodians have policies in place to safeguard assets from theft or loss. Additionally, custodial agreements must prohibit the lending, pledging, or rehypothecating of crypto assets without clients’ consent.
State trust companies must also maintain audited financial statements and independent reports on their internal controls. These measures ensure that crypto assets remain secure and separate from the custodian’s balance sheet. Daly noted that the guidance addresses the “today’s products, today’s managers, and today’s issues,” while future rulemaking may provide additional clarity.
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