SEC

SEC Ruling Opens Door for Ripple as Qualified Crypto Custodian

SEC validates state-chartered trusts as qualified crypto custodians, directly benefiting Ripple's Standard Custody. Major regulatory clarity enables institutional custody expansion and strengthens XRP's infrastructure ahead of pending ETF decisions. Full analysis inside.

The Ripple Effect

02 Oct 2025 — 5 min read

Major no-action letter validates state-chartered trusts, positioning Ripple's Standard Custody for institutional market expansion

The U.S. Securities and Exchange Commission issued a landmark no-action letter on September 30, 2025, clarifying that investment advisers can use state-chartered trust companies as qualified custodians for crypto assets without facing enforcement action. This regulatory development, responding to a request from law firm Simpson Thacher & Bartlett LLP, marks a significant shift in institutional crypto custody—and positions Ripple's Standard Custody & Trust Company as a key beneficiary.

Understanding the SEC's No-Action Letter

The Division of Investment Management's guidance addresses long-standing uncertainty about whether state-chartered trust companies meet the definition of "bank" under the Investment Advisers Act of 1940 and the Investment Company Act of 1940 when safeguarding digital assets. Until now, state-chartered trust companies were not universally viewed as eligible custodians for crypto assets, creating regulatory ambiguity for investment advisers.

To qualify, state-chartered trusts must be authorized by a state banking authority, maintain independent control reports (such as SOC-1 or SOC-2 audits), provide GAAP-compliant audited financial statements, and implement written policies designed to safeguard crypto assets from theft, loss, and misuse. Additional safeguards include keeping client assets off the custodian's balance sheet and allowing periodic due diligence checks, including surprise audits.

SEC Commissioner Hester Peirce welcomed the decision, stating it eliminates uncertainty for advisers navigating regulatory gray areas, and emphasized that the guidance extends beyond clients holding crypto to include tokenized securities.

Market and Industry Implications

The decision provides long-sought clarity in a space where crypto firms were often sidelined in favor of traditional custodians, such as BNY Mellon or Fidelity. Bloomberg Intelligence analyst James Seyffart described the letter as "a textbook example of more clarity for the digital asset space" and "exactly the sort of thing the industry was asking for over the last few years."

The letter clears a path for several firms already operating state-chartered trusts, including Coinbase Custody Trust Company in New York, which manages over $90 billion in assets, and BitGo Trust Company in South Dakota, which oversees $64 billion. These firms can now serve registered investment advisers and regulated funds with greater regulatory certainty.

This custodial development marks a major milestone for both the growth of crypto custody providers and broader institutional adoption of digital assets, reflecting the Trump administration's hands-off approach to digital asset oversight.

Ripple's Standard Custody Positioned for Growth

Ripple's involvement in this regulatory shift is particularly significant. In February 2024, Ripple announced its acquisition of Standard Custody & Trust Company, an enterprise-grade regulated platform for digital assets that holds a limited purpose trust charter from the New York State Department of Financial Services. The acquisition was completed in June 2024 after receiving regulatory approval.

Standard Custody meets all requirements to be a Qualified Custodian under the Investment Company Act of 1940 and the Investment Advisers Act of 1940, having been granted charter status by NYDFS after a comprehensive review of its business, security protocols, operational flows, and compliance programs.

Standard Custody is a subsidiary of PolySign, founded by Ripple co-founder Arthur Britto, and its platform offers novel blockchain technology providing end-to-end encryption and distributed trust protocols for securing secret keys. Ripple's chief legal officer stated the acquisition enables the company to strengthen existing product offerings and explore new, complementary products, positioning Ripple to serve customers in new ways as part of its goal to become a comprehensive crypto infrastructure provider.

XRP and Ripple Impact Analysis

The SEC's custody guidance carries multiple implications for XRP and Ripple's broader business strategy:

Institutional Infrastructure Development: Ripple, through its Standard Custody & Trust Company acquired in 2023, can now extend custody services tied to its institutional strategy. This positions Ripple as a one-stop shop for financial institutions, offering payment solutions through RippleNet alongside regulated custody services—a compelling value proposition for banks exploring blockchain adoption.

Regulatory Momentum Continues: This development adds to Ripple's recent regulatory victories. On August 7, 2025, both the SEC and Ripple dropped their appeals in the landmark securities lawsuit, with Judge Torres' 2023 ruling standing: XRP is definitively not a security when sold on public exchanges. The custody guidance further validates Ripple's compliance-first approach and regulatory positioning.

ETF Catalyst Timeline: The SEC is scheduled to begin considering approval for multiple spot XRP ETF applications starting October 18, 2025, with Bloomberg giving them a 95% chance of approval. Seven XRP spot ETF applications remain pending, with decisions expected between October 18 and November 14. Having qualified custody infrastructure through Standard Custody strengthens the ecosystem supporting these ETF launches, as institutional-grade custody is essential for ETF operations.

Competitive Positioning: Ripple recently announced custody partnerships with top-tier banks including HSBC, BBVA, and Zodia Custody, and now supports live commercial custody offerings in 20 regulatory jurisdictions. The SEC's no-action letter enables Standard Custody to compete more effectively with traditional financial institutions for U.S.-based institutional custody business.

Business Model Diversification: Beyond payment solutions, Ripple is building a comprehensive financial services portfolio. Jack McDonald, Standard Custody's CEO, joined Ripple as Senior Vice President of Stablecoins to help bring Ripple's USD-backed stablecoin (RLUSD) to market. Qualified custody status supports this stablecoin strategy by providing secure storage infrastructure for institutional RLUSD holders.

Looking Ahead

Under SEC Chair Paul Atkins, who was sworn in on April 21, 2025, the agency has taken a lighter regulatory approach compared to former Chair Gary Gensler, emphasizing clear guidance and bright-line rules for assessing compliance with federal securities laws. This no-action letter exemplifies that shift toward regulatory clarity over enforcement-first tactics.

For Ripple, the custody guidance represents another validation of its long-term strategy: building compliant, institutional-grade infrastructure that bridges traditional finance and blockchain technology. As institutional crypto adoption accelerates, having both payment rails and regulated custody services positions Ripple uniquely in a market increasingly demanding comprehensive, compliant solutions.

The convergence of regulatory clarity, institutional custody infrastructure, and pending ETF approvals creates a potentially transformative moment for XRP's institutional adoption. While market outcomes remain uncertain, the regulatory foundation is now substantially stronger than at any previous point in XRP's history.

Key Takeaways:

The SEC issued a no-action letter allowing state-chartered trust companies to serve as qualified custodians for crypto assets
Ripple's Standard Custody & Trust Company, acquired in 2024, benefits directly from this regulatory clarity
The development strengthens Ripple's institutional infrastructure alongside recent legal victories
Upcoming XRP ETF decisions in October-November could leverage this improved custody framework
Ripple continues evolving into a full-spectrum crypto financial services provider

DISCLAIMER

This newsletter is for informational purposes only and does not constitute investment advice, advertising, or a recommendation to buy, sell, or hold any securities. This content is not sponsored by or affiliated with any of the mentioned entities. Investments in cryptocurrencies or other financial assets carry significant risks, including the potential for total loss, extreme volatility, and regulatory uncertainty. Past performance is not indicative of future results. Always consult a qualified financial professional and conduct thorough research before making any investment decisions.