Summary

  • The SEC proposes a conditional category for state trust companies to custody crypto assets and related cash; a state charter alone would not make every company eligible.
  • Before engagement and annually, advisers and regulated funds would document state-law authority, safeguards, audited statements, an independent control report and asset segregation.

A state trust charter can confer fiduciary powers without answering whether governing state law authorizes a company to custody crypto assets. The Securities and Exchange Commission’s proposal would make that question part of an adviser’s or regulated fund’s documented custodian selection.

Issued on 1 October and published in the Federal Register on 6 October, file S7-2026-35 proposes a new permitted-custodian category for state trust companies. It is limited to crypto assets and related cash or cash equivalents when the company relies on this new category rather than an existing bank definition. The SEC still labels the measure “Proposed” and sets 7 December 2026 as the comment deadline.

The proposed definition requires organization under state law, supervision and examination by a state authority that supervises banks, and state-law permission to exercise fiduciary powers. The SEC asks whether those boundaries are appropriate, whether other state-regulated entities should count and whether examination frequency should be specified.

Before engagement and annually thereafter, an adviser or fund would make a written, post-inquiry determination that it has a reasonable basis to believe the company is authorized under relevant state law to provide crypto custody. A legal opinion or company certification could support the finding but would not replace review of the company and governing statutes and regulations. The record must also cover implemented written safeguards against theft, loss, misuse and misappropriation, including private-key management and cybersecurity.

The adviser or fund would review audited annual financial statements and the latest independent-accountant internal-control report before engagement and each year. Client assets would have to be segregated from the trust company’s own assets; a regulated fund’s custody agreement would specify that separation. These remain proposed conditions, not current duties.

The SEC says some states have crypto-custody frameworks and many do not. Its economic analysis forecasts that state-law review could be costly or unclear and some firms may not be able to make the proposed reasonable-basis determination. Those are forecasts, not measured outcomes. The proposal would not give every state-chartered trust company a federal seal; each route depends on state-law authority and continuing evidence.

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