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Georgetown Law 2025 Advanced eDiscovery Institute
November 21, 2025 | 8:30 AM – 9:30 AM ET
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Articles + Publications October 7, 2025
On September 30, 2025, the Office of the Chief Counsel of the Securities and Exchange Commission’s (SEC) Division of Investment Management (the Division) issued a no-action response (the No-Action Letter) stating that it would not recommend enforcement against registered investment advisers (RIAs) or certain regulated funds (i.e., registered investment companies and business development companies) for maintaining crypto assets and related cash and cash equivalents with certain state-chartered financial institutions (state trust companies) so long as particular conditions are met.[1] In doing so, the No-Action Letter permits regulated funds and RIAs to treat state trust companies as “banks” for purposes of the custody requirements of Investment Company Act of 1940, as amended (the 1940 Act), the Investment Advisers Act of 1940, as amended (the Advisers Act) and the rules thereunder.
Custody Requirements Under the 1940 Act and Advisers Act
The custody requirements established by the 1940 Act and Advisers Act are designed to prevent the theft, loss, and misappropriation of investor assets. Sections 17(f) and 26(a) of the 1940 Act require registered funds to place and maintain securities and similar investments with certain qualified custodians. Similarly, RIAs who have custody of their client’s funds and securities must maintain such items with a “qualified custodian” pursuant to Rule 206(4)-2 of the Advisers Act. Qualified custodians include entities that meet the definition of “bank” under §2(a)(5) of the 1940 Act or §202(a)(2) of the Advisers Act.
Typically, national and state-chartered banks qualify as a custodian for registered funds and RIAs by meeting the definition of a bank under the 1940 Act and the Advisers Act. State trust companies, however, are legal entities organized under state law that are: (i) supervised and examined by a state authority having supervision over banks and (ii) permitted to exercise fiduciary powers under applicable state law.[2] For a state trust company to meet the definition of “bank” under the 1940 Act and Adviser Acts, it must also satisfy the requirement that “a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency.” The interpretation of this portion of the definition was the subject of the No-Action Letter.
State Trust Companies as “Banks”
The No-Action Letter permits regulated funds and RIAs to maintain crypto assets (and cash and/or cash equivalents reasonably necessary to effect transactions in crypto assets) with state trust companies, if the following conditions are met:
In an atypical response to staff no-action letters, two SEC commissioners commented on the issuance of the No Action Letter — one voicing support, and one expressing a more cautionary view.[3]
Conclusion
The Division’s No-Action Letter marks the latest development in the regulatory landscape for crypto asset custody, allowing crypto assets to be placed and maintained at state trust companies, potentially broadening the universe of eligible providers for custody services. Maintaining crypto asset requires a complex web of technology and operational systems to protect digital assets from misappropriation, making it particularly challenging for compliance. As the RIA and fund industries navigate these complexities, participants remain hopeful that the SEC will provide further guidance on crypto asset custody issues, as evidenced by recent comment letters to the SEC’s Crypto Task Force.[4] Stay up to date with the latest on crypto asset regulatory and market developments by subscribing to our Financial Services Blog, our Consumer Financial Services Law Monitor, and to our podcast, The Crypto Exchange, via Apple podcast, Google Play, Stitcher, or your preferred platform.
[1] Simpson Thacher & Bartlett LLP, SEC No-Action Letter, Sept. 30, 2025, available here.
[2] Id.
[3] Commissioner Hester M. Pierce, Statement on “Out of the Gray Zone: Statement on The Division of Investment Management’s No-Action Letter Relating to the Custody of Crypto Assets with State Trust Companies” U.S. Sec. & Exch. Comm’n (Sept. 30, 2025) available here; Commissioner Caroline A. Crenshaw, Statement on “Poking Holes: Statement in Response to No-Action Relief for State Trust Companies Acting as Crypto Asset Custodians” U.S. Sec. & Exch. Comm’n (Sept. 30, 2025) available here.
[4] For example, see the SEC comment letter submitted by National Society of Compliance Professionals on September 8, 2025, which underscores the need for additional guidance on crypto asset custody, available here.
Mike Matthews also contributed to this article. He is not licensed to practice law in any jurisdiction; bar admission pending.
Speaking Engagements
Georgetown Law 2025 Advanced eDiscovery Institute
November 21, 2025 | 8:30 AM – 9:30 AM ET
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November 19, 2025 | 3:30 PM – 7:00 PM ET
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Restructuring in the Age of Artificial Intelligence
November 17, 2025 | 1:30 PM – 2:30 PM ET
Offices of CohnReznick
New York, NY
Leading the energy evolution.
Learn more
From compliance to the courtroom, we have you covered.
Learn more
Helping you focus on what matters – improving human health.
Learn more
Trusted advisors to leading insurers for 100+ years.
Learn more
Unlocking value in the middle market and beyond.
Learn more
Full-service legal advice from coast to coast.
Learn more
Applying radical applications of common sense
Explore More
Our standard-setting client experience program.
Explore more
Delivering life-changing help to those most in need.
Explore More
Our firm’s greatest asset is our people.
Explore More
Market-leading eDiscovery and data management services.
Explore more
The Pepper Center for Public Services
Explore more
Strategies helps businesses and individuals solve the complexities of dealing with the government at every level. Our team of specialists concentrate exclusively on government affairs, representing clients nationwide who need assistance with public policy, advocacy, and government relations strategies.
This unique program provides innovative and affordable opportunities to startups and early-stage emerging companies with a solid technology or scientific foundation. We help companies that have a quality management team in place and do not have other significant legal representation.
eMerge’s lawyers and technologists work together to deliver strategic end-to-end eDiscovery and data management solutions for litigation, investigations, due diligence, and compliance matters. We help clients discover the information necessary to resolve disputes, respond to investigations, conduct due diligence, and comply with legal requirements.
Stay ahead of the curve and in touch with our latest thinking on the issues that are top of mind across our practices and industry sectors.
Change happens fast in today’s turbulent world. Stay on top of the latest with our industry-specific channels.
Take a closer look at how we partner with clients to help them realize their goals.