The Securities and Exchange Commission (SEC) is taking a small yet important step toward clarifying how registered investment advisers and funds can hold digital assets. In an October 1, 2025, no-action letter, the Division of Investment Management (DOIM) said it would not recommend enforcement against advisers or certain funds that use a state-chartered trust company to custody digital assets, provided the firms meet certain diligence and disclosure requirements (SEC Div. Inv. Mgmt., No-Action Letter (Oct. 1, 2025)).
The DOIM’s Director Brian Daly described the relief as an “interim step” toward updating the agency’s custody rule to reflect digital assets, noting that the move “unlocks a larger universe of [digital-asset] custody options” while maintaining investor protections (id.). The letter follows months of industry uncertainty over whether state trust companies could qualify as “banks” under the Advisers Act and the Investment Company Act of 1940 frameworks.
The no-action relief only applies to the custody of digital assets and it describes several detailed safeguards. It requires custodians to maintain written policies over private key management and cybersecurity, provide internal control reports, and prohibit rehypothecation of customer assets. Advisers and funds must also conduct due diligence, review audits, disclose risks to clients, and determine that the arrangement serves investors’ best interests (id.).
SEC Commissioner Hester Peirce supported the no-action relief letter, calling it a “welcome development” for advisers and funds constantly caught up in “a guessing game” over which entities can serve as qualified digital-asset custodians (Hester M. Peirce, Out of the Gray Zone: Statement on the SEC Div. Inv. Mgmt. No-Action Letter Relating to the Custody of Crypto Assets with State Trust Companies (Sept. 30, 2025)). She emphasized that the letter does not expand the definition of a permissible custodian but clarifies that certain state trust companies may already fit within the existing framework (id.). Commissioner Caroline Crenshaw dissented, warning that the action “degrades [the agency’s] custody framework” by equating state-chartered entities, which are often subject to less uniform oversight, to federally regulated banks (Caroline A. Crenshaw, Poking Holes: Statement in Response to No-Action Relief for State Trust Companies Acting as Crypto Asset Custodians (Sept. 30, 2025)). She also questioned whether adopting such a shift through a staff letter rather than through formal rulemaking complies with the Administrative Procedure Act (id.).
Overall, the statement reflects a significant shift in the SEC’s posture toward digital-asset infrastructure. While the no-action relief does not redefine the statutory definition of “bank” under the Advisers Act, it does point toward a custody framework that recognizes that state trust companies can operate within the existing framework under certain conditions. Advisers and fund sponsors should expect that many of the letter’s detailed safeguards will form the foundation of a future rulemaking that formally integrates digital assets into the SEC’s custody regime (see SEC Div. Inv. Mgmt., No-Action Letter (Oct. 1, 2025)).
