In tandem with these updates, the SEC’s Division of Trading and Markets and FINRA’s Office of General Counsel have formally withdrawn their 2019 Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities, effective immediately.

The newly issued FAQ from the Division of Trading and Markets outlines how broker-dealers can comply with existing custody and capital rules under Rule 15c3-3, distinguishing between crypto assets that qualify as securities and those that do not. Among the key points:

Rule 15c3-3(b) applies only to securities, not crypto assets that fall outside that category.

Broker-dealers may establish control over digital asset securities through paragraph (c) of Rule 15c3-3, even if those assets are not in certificated form.

The SEC’s 2020 SPBD Statement is not mandatory but offered a temporary “safe harbor”; broker-dealers may rely on standard control procedures instead.

For crypto ETPs, in-kind creation and redemption is permitted, though proprietary holdings in assets like Bitcoin or Ether must be properly accounted for in capital calculations.

The agency also clarified that only registered crypto securities are protected under the Securities Investor Protection Act (SIPA). Non-security crypto assets, even if held at a SIPC-member broker-dealer, do not receive SIPC protection. However, broker-dealers may mitigate insolvency risks through UCC Article 8 designations or other contractual arrangements.

Of particular note is the SEC’s confirmation that transfer agents may use distributed ledger technology as their official recordkeeping system, so long as they meet all federal securities law requirements.

In a critical update, the SEC and FINRA rescinded the 2019 Joint Staff Statement, which had outlined preliminary views on custody practices for digital asset securities. Its withdrawal signals a more formalized and structured regulatory posture from the SEC, replacing ad hoc staff views with clearer procedural guidance.

This shift underscores a growing institutional acceptance of crypto assets within the broker-dealer and transfer agent infrastructure — albeit under a strict compliance regime. Firms are encouraged to contact the SEC’s Crypto Task Force or FINRA’s crypto regulatory team for further clarification.

With these developments, the SEC has taken a significant step in modernizing its oversight framework to accommodate digital assets, while emphasizing that legal clarity does not eliminate compliance risk. Custody of crypto assets remains a complex undertaking — but one that is now better defined.

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Filed under: Bitcoin - @ May 17, 2025 12:22 pm