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According to the wording of the staff letter, state-chartered trust companies can provide crypto custodial services after due diligence from investment advisors. The SEC’s no-action letter is in response to an earlier inquiry by Simpson Thacher & Bartlett LLP seeking assurances that the SEC will not recommend enforcement action for treating state trust companies as banks.
Under the Investment Advisers Act of 1940, financial advisors are required to keep client assets with a qualified custodian, typically a bank or trust company. However, state-chartered trust companies are generally not considered as eligible custodians for crypto assets, with industry players keen on seeking clarity from the SEC.
Pundits have predicted that the no-action letter will have far-reaching effects for the cryptocurrency industry, potentially opening the floodgates for new players in the custody space. By virtue of the latest SEC’s stance, Coinbase Custody and Ripple, via its subsidiary Standard Custody & Trust, will be recognized as qualified custodians.
Already, Coinbase is charting its path with crypto custody after being tapped by the DOJ’s US Marshals Service to hold crypto assets. Ripple’s attempt to launch crypto custody services for banks has gained significant momentum as the local ecosystem heats up.
 
Furthermore, BitGo and WisdomTree are expected to account for a significant portion of the market share in the cryptocurrency custody market. Apart from the prospect of earning custody fees, Web 3 firms are entering the custody market to meet institutional demand while capitalizing on the benefits of increased control over infrastructure.
Although still a staff letter, experts have disclosed that the SEC will update its rulebook in the near future to reflect the changing stance. While public crypto-related SEC no-action letters are rare, optimists are bracing for an incoming wave as the US lowers its guard for the industry.
“This is a staff letter, so at some point, this topic could be addressed by future rulemaking,” said Brian Daly, Director of the SEC’s Division of Investment Management. “We believe the market will benefit from having this guidance for today’s products, today’s managers, and today’s issuers.”