Custody Relief for Crypto Assets: SEC No-Action Letter Benefits Advisers and Registered Investment Companies

October 13, 2025

What happened?

On September 30th, the SEC Division of Investment Management gave an answer to the most challenging question for crypto assets: What entities are qualified custodians for crypto assets? Since qualified custodians must meet the definition of a banking institution for both the Adviser Act’s Custody Rule and the Investment Company Act’s specified custodian definition crypto assets that exist and move outside of traditional arrangements created ambiguity for registered investment advisers (“RIAs”) and registered investment companies (“RICs”). How can you be sure you are properly safeguarding client assets when the assets are crypto assets?

The no-action letter states that the SEC would not recommend enforcement action against an RIA or RIC if a State Trust Company was used as the “bank” to hold crypto assets and related cash or cash equivalents under specific conditions. The letter defined “crypto assets” as assets that are digital representations of value that are recorded on a cryptographically secured distributed ledger. The SEC staff pointed out that State Trust Companies are critical providers of custody services, with sophisticated controls to ensure safekeeping of assets. The fact that these sophisticated controls have been developed within state regulatory frameworks was also referenced.

Conditions for No-Action Relief:

RIAs and RICs must satisfy the following conditions to rely on the no-action letter:

• Due Diligence – Must have a reasonable basis for believing the State Trust Company is authorized to provide custody services to crypto assets and related cash or cash equivalents. This includes confirming that the State Trust Company has implemented written policies and procedures to safeguard crypto assets.
• Review of Annual Financial Statements and Internal Control Reports – Must receive and review (1) the most recent annual financial statements and confirm they were performed by an independent public accountant and in accordance with the Generally Accepted Accounting Principles (“GAAP”), and (2) the most recent written internal control report prepared by an independent accountant (such as a SOC-1 report or SOC-2 report) to confirm controls are suitably designed for safeguarding crypto assets.
• Written Custodial Services Agreement – Must enter into a written custodial services agreement with the State Trust Company that provides (1) the State Trust Company will not lend, pledge, hypothecate or rehypothecate any crypto assets or related assets held in custody without prior consent of the RIA or RIC and only for the account of such RIA or RIC, and (2) All crypto assets and related assets must be segregated from the State Trust Company’s assets.
• Disclosures – Must disclose any material risks associated with using the State Trust Company as custodian.
  • RIAs must disclose this to RIA clients
  • RICs must disclose this to the members of its board of directors or trustees
• Best Interest Determination – The RIA, with respect to clients, or the RIC, with respect to its board of directors or trustees, must reasonably determine that the use of the State Trust Company’s services as custodian is in the best interest of the RIA client or RIC and its shareholders as applicable.

The letter ends by emphasizing that all requirements of the Custody Rule still apply and that the relief is only available under the facts and circumstances presented.

What does this mean for me?

There is now some certainty for crypto assets. This no-action letter will likely lead firms to re-examine current approaches to custody of crypto assets, especially the conditions for relief when using State Trust Companies.

The no-action letter was also accompanied by two dueling commissioner statements. Commissioner Hester Peirce, who heads the SEC’s Crypto Task Force, issued a statement on the no-action letter entitled “Out of the Gray Zone.” Her statement applauds the letter for ending the “guessing game” that RIAs and RICs have been caught up in when searching for permissible custodians for crypto assets. Her statement also indicates that the opportunity to use State Trust Companies to avoid the regulatory gray zone is a positive one and still allows for more opportunities to improve or modernize custody requirements in future rulemaking.  On the other hand, Commissioner Crenshaw questioned whether this no-action letter was degrading the custody framework in the name of expediency in a statement entitled “Poking Holes.” Her statement points out differences between trust companies and traditional custodians and suggests that such a shift should have arrived via a rulemaking, with public comments and economic analysis.

We will continue to monitor regulatory updates and new developments that impact investment advisors. If you have questions, contact us. Fairview is here to help.