SEC No-Action Letter Gives Traditional Banks Nudge Toward Crypto Custody

The battle lines for cryptocurrency’s future won’t be drawn over hype and speculation, or even technological innovation.

Instead, as the sector matures and looks to capture real-world impact, a trifecta of trust, governance and scale may be what determines its future.

And as a Tuesday (Sept. 30) no-action letter (NAL) from the U.S. Securities Exchange Commission’s (SEC) Division of Investment Management underscores, custody of crypto assets is fast becoming one of the defining battlegrounds in the broader institutionalization of digital finance.

The letter stated that the staff would not recommend enforcement action against registered investment advisers or regulated funds that maintain crypto assets and related cash equivalents with certain state-chartered financial institutions.

“For too long, registered advisers and regulated funds have been caught up in a guessing game as to whether their entity of choice for crypto asset custody, which also may be the only available custodian for such service, is a permissible custodian under the custody provisions of the Investment Advisers Act of 1940,” SEC Commissioner Hester Peirce said in a statement.

“Regulatory gray zones can harm investors, as this one has,” Peirce added.

Though nonbinding, the guidance carries weight. It signals that the SEC is willing, at least for now, to accept a role for state trust companies — traditionally less systemically prominent than national banks — as eligible custodians for cryptocurrency assets. For an industry grappling with the mechanics of safeguarding billions of dollars’ worth of private keys and tokenized instruments, that small gesture may have outsized implications.

After all, payment firm Stripe is reportedly applying for a New York State trust charter as it looks to scale its stablecoin offerings.

Read more: Institutional-Grade Custody Remains Missing Link in Crypto’s Mainstream Breakthrough

The Role of Custody in Crypto Moves From Obscure to Urgent

The SEC’s no-action letter does not settle the custody debate, but it reframes it. By signaling tolerance for state-regulated custodians, the agency has effectively invited traditional finance to engage more directly with cryptocurrency infrastructure.

For decades, institutional investors and fund managers have treated “qualified custodian” status as a baseline requirement — an assurance of regulated safekeeping of client assets. In traditional markets, custody often means record-keeping and settlement, with physical assets or cash balances secured by banks or specialized custodians.

Cryptocurrency assets, by contrast, add layers of complexity. Ownership hinges on the control of cryptographic private keys. Lose the keys, and the assets are gone. This existential risk has driven the emergence of specialized crypto custodians that invest heavily in cold-storage solutions, key-management protocols, insurance coverage and third-party audits.

By acknowledging the role of state-chartered trust companies, the SEC letter effectively opens the door to a more competitive, and perhaps fragmented, custody market.

Still, it’s worth stressing what the NAL does and does not do. The letter does not rewrite the Investment Advisers Act or the Custody Rule. It also does not provide formal rulemaking that binds the SEC or the courts. Instead, it reflects the staff’s view that it will not recommend enforcement actions if advisers and funds hold crypto assets with certain state-regulated trust companies that meet baseline prudential standards.

See also: Crypto Is Coming for the Cubicle; Are Finance Teams Ready?

Financial Institutions Facing Strategic Choices

The immediate effect of the SEC’s NAL is to reduce regulatory friction for certain players. The broader consequence may be a more vibrant, if fragmented, competitive landscape.

Institutional investors want secure, auditable, and cost-efficient custody. At the same time, cryptocurrency markets continue to evolve with new token types, staking models, and on-chain finance applications that raise fresh custody challenges.

For banks that have been hesitant, the decision may feel like a nudge — if not yet a shove — toward committing capital and strategy. For specialized custodians, it represents an opening to solidify their position before larger incumbents fully mobilize.

The community banking realm is already feeling the impact of crypto’s encroachment into traditional financial services.

“About 18 months ago, it was pretty consistently 1% of deposits leaving institutions on a monthly basis and going to crypto exchanges. Earlier this year, it was about 3%. Now we’re seeing it, you know, edge up to 5% for our clients,” Jon Ungerland, chief information officer of DaLand CUSO, told PYMNTS in an interview posted Sept. 25. “If you’re in the money business and your competitor can do it exponentially faster, cheaper and safer than you, then you can’t compete.”