SEC No-Action Letter Lets State Trusts Hold Crypto for Clients

Core Viewpoint - The SEC's no-action letter provides clarity for crypto firms, allowing them to use state-chartered trust companies for custody of digital assets without facing regulatory penalties, which is a significant shift from previous rigid regulations [1][4]. Summary by Sections SEC's No-Action Letter - The letter states that if a state trust company is properly established to handle crypto and adheres to specific rules, advisers and funds can treat it like a traditional bank for custody purposes [2][3]. Requirements for Trust Companies - Trust companies must be licensed to hold crypto, have written protections in place, keep client assets separate from their own, and cannot access those assets without explicit permission [3][6]. Importance for Custody - The SEC's move is crucial as it expands the options for crypto custody, which were previously limited to banks or broker-dealers, often unsuitable for digital assets [4][5]. Flexibility and Responsibilities - While the SEC's letter offers flexibility, advisers must ensure that the trust company is a suitable choice for their clients and that all necessary safeguards are documented in contracts [6][7]. Industry Reactions - The response to the SEC's decision is mixed; some industry players welcome the clarity, while others, like Commissioner Caroline Crenshaw, express concerns about potential risks, lack of data, and the possibility of inconsistent rules that could harm investors [8].