The US Securities and Exchange Commission (SEC) has signaled flexibility on cryptocurrency custody rules, saying investment advisers may use state trust companies to safeguard digital assets without fear of enforcement action.

In a rare no-action letter issued Tuesday, the SEC’s Division of Investment Management said it would not recommend regulatory action against advisers relying on state-chartered trust companies to custody crypto, provided firms follow strict due diligence and client-protection procedures.

Earlier coverage: SEC’s Tokenized Stock Push Could Bypass Crypto’s Benefits, Warns Dragonfly Exec

The letter came in response to a request from Simpson Thacher & Bartlett, which sought clarity for registered advisers and venture capital firms interested in holding digital assets. The move reflects a broader shift in Washington under the Trump administration toward easing regulatory oversight to attract crypto businesses to the United States.

Interim step to modernization

Division director Brian Daly described the decision as an “interim step to a longer-term modernization of our custody requirements.” The SEC is already reviewing custody rules under the Investment Advisers Act and the Investment Company Act, which traditionally limit custodians to banks and certain other qualified entities.

Law firm Simpson Thacher & Bartlett requested assurances from the SEC that state trust companies could custody cryptocurrency assets. Source: SEC

Under the guidance, advisers using state trust companies must ensure those entities have robust safeguards for digital assets, while advisers themselves must perform due diligence and confirm such arrangements are in clients’ best interests.

Support from industry and policymakers

SEC Commissioner Hester Peirce welcomed the move, calling it a long-overdue clarification that “eliminates the guessing game” advisers have faced. She added that the policy would ultimately benefit both investors and funds while potentially opening the door for modernization through “principles-based rules.”

The announcement drew praise from Bloomberg ETF analyst James Seyffart, who called it “a textbook example of more clarity for the digital asset space,” and from Wyoming Senator Cynthia Lummis, who said the SEC was catching up to steps already taken in her state back in 2020.

Source: Cynthia Lummis

Crypto advocates also applauded the change, with some predicting it would encourage more firms to step into the custody business, strengthening adoption and institutional participation.

Pushback from Commissioner Crenshaw

Not all commissioners agreed. SEC Democrat Caroline Crenshaw criticized the no-action letter as a “troubling” end-run around formal rulemaking, which normally includes public comment and economic analysis.

She argued that the new guidance undermines the Office of the Comptroller of the Currency’s charter process and creates an uneven playing field between state trust companies and federally chartered entities.

“With today’s action, state trust companies can bypass the entire OCC application process in which others are participating conscientiously,” Crenshaw warned. “Deciding whom to trust as a custodian is a high-stakes and important question.”

Despite the pushback, the letter marks a significant step toward regulatory clarity for crypto custody in the United States, with potential long-term implications for institutional adoption of digital assets.