SEC investment-management staff permits conditional use of state trust companies for crypto custody

What changed

Investment Management staff provided conditional no-action relief allowing registered advisers and regulated funds to treat certain state-chartered trust companies as permissible bank custodians for crypto assets and related cash. The relief depends on due inquiry, written agreements, segregation, financial and control reporting, risk disclosure, and a best-interest determination.

Who it affects

• SEC-registered investment advisers with custody of client crypto assets
• Registered funds and business development companies
• State trust companies and advisory clients

What is still open

• Commission rulemaking on adviser and fund custody
• How advisers will evidence state-law status, control quality, solvency, segregation, and continued eligibility

What it means for an advisor

• Build a documented annual due-inquiry and best-interest process before relying on the relief
• Obtain and review governing law, audited financials or control reports, segregation, rehypothecation, insurance, key-control, incident, insolvency, and termination terms

Previous interpretation

Advisers and funds faced substantial uncertainty over whether a state trust company qualified as a bank for the covered crypto custody provisions.