Charting a New Course for Digital Asset Securities

On May 15, 2025, the Division of Trading and Markets (the “Division”) of the U.S. Securities and Exchange Commission (SEC) and the Office of General Counsel of the Financial Industry Regulatory Authority, Inc. (FINRA) (together, the “Staffs”) withdrew[1] the 2019 Joint Staff Statement regarding broker-dealer custody of digital asset securities (the “2019 Joint Staff Statement”),[2] while simultaneously releasing new FAQs[3] relating to crypto asset activities and distributed ledger technology. The Staffs’ actions follow the SEC’s Crypto Task Force’s roundtable focused on crypto custody challenges (the “Crypto Custody Roundtable”), part of its ongoing series established to discuss crypto asset regulation.

Key Takeaways

• The FAQs relate to the application of certain broker-dealer financial responsibility rules and transfer agent rules to crypto asset activities and distributed ledger technology. The FAQs signal a step back from the regulatory burdens introduced by the Special Purpose Broker-Dealer statement issued December 23, 2020 (the “2020 SPBD Statement”).[4]
• The withdrawal of the 2019 Joint Staff Statement and issuance of new FAQs are the latest efforts by the SEC staff to chart a new course for digital assets, removing significant barriers previously limiting broker-dealer participation in the digital asset market.

Previous Guidance on the Custody of Digital Asset Securities

The withdrawal of the 2019 Joint Staff Statement signals a substantial shift from the Staffs’ previously cautious stance on broker-dealer custody of digital asset securities. The 2019 Joint Staff Statement questioned whether broker-dealers could intermediate and custody digital asset securities in compliance with custodial requirements under Rule 15c3-3 (known as the “Customer Protection Rule”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), noting the differences in the mechanics and risks associated with the custody of traditional securities compared to digital asset securities. The 2019 Joint Staff Statement expressed a view that the manner in which digital asset securities are issued, held, and transferred creates a greater risk of fraud and theft, as well as the potential for irreversible transfers, with no ability to invalidate fraudulent transactions, recover or replace lost property, or correct errors. The Staffs also emphasized that broker-dealers may find it challenging to comply with the Customer Protection Rule’s possession or control requirements when custodying digital asset securities directly, as a broker-dealer may not be able to demonstrate that it has the exclusive control of a digital asset security.

The SEC followed its 2019 Joint Staff Statement with the 2020 SPBD Statement. Set to expire in April 2026, the 2020 SPBD Statement outlined nine conditions under which the SEC staff would not recommend enforcement action against a broker-dealer for custodying digital asset securities. These conditions include requiring that the broker-dealer: (i) limit its business exclusively to digital asset securities; (ii) implement policies and procedures to assess distributed ledger technology prior to undertaking to maintain custody of the digital asset security; (iii) demonstrate exclusive control over private keys; (iv) establish policies and procedures for responding to blockchain disruptions; and (v) provide written disclosures to customers about the risks of digital asset securities.

Foreshadowing action by SEC staff, SEC Commissioner Hester Peirce recently solicited comments[5] during the Crypto Custody Roundtable on whether the 2020 SPBD Statement should be retained, and newly sworn-in SEC Chair Paul S. Atkins alluded to repealing and replacing it with a more national regime.[6] While the 2020 SPBD Statement currently remains in effect, the new FAQs (discussed further below) ease some of the 2020 SPBD Statement’s regulatory obligations.

The New FAQs

The new FAQs represent a substantial shift in the SEC staff’s approach to crypto asset activities and distributed ledger technologies:

• FAQ #1 clarifies that the possession and control requirements of the Customer Protection Rule do not apply to crypto assets that are not securities. Notably, guidance on how to determine whether a crypto asset is or is not a “security” was not provided; however, the SEC’s Division of Corporation Finance has provided statements of relief regarding meme coins,[7] mining,[8] and stablecoins.[9]
• FAQ #2 states that a broker-dealer may establish control of crypto asset securities via Rule 15c3-3(c), even if those assets are not in certificated form, when held at an otherwise good “control location” under Rule 15c3-3(c).
• FAQ #3 clarifies that the 2020 SPBD Statement’s framework is not the exclusive path for broker-dealers seeking to custody customer crypto assets that are securities. Instead, the FAQ states that a broker-dealer carrying crypto asset securities for a customer or “PAB account” (i.e., for a proprietary securities account of another broker or dealer) may establish control under Rule 15c3-3(c).
• FAQ #4 clarifies that proprietary positions in bitcoin and ether—which are the only two crypto assets currently underlying crypto asset exchange-traded products (ETPs) trading on national securities exchanges—are “readily marketable” and, therefore, may be used in the broker-dealer’s net capital computations, subject to the same risk-based deductions (known as “haircuts”) as other commodities (i.e., 20%) under Appendix B of Rule 15c3-1 of the Exchange Act (the “Net Capital Rule”). This is a significant concession from the SEC’s previous requirement of up to a 100% haircut for these crypto assets (meaning they were essentially treated as having no value when calculating a broker-dealer’s net capital), which is the haircut for securities deemed “non-marketable” under the Net Capital Rule.[10]
• FAQ #6 highlights that non-security crypto assets held by a broker-dealer are not protected under the Securities Investor Protection Act of 1970 (SIPA), as SIPA is fundamentally tailored to “securities.”

The FAQs also provide analysis on transfer agent requirements to crypto assets that are securities.

Looking Ahead

Recommendations from the SEC’s Crypto Task Force roundtables suggest forthcoming actions by the SEC, as well as continued guidance from SEC staff. In a keynote address[11] at the SEC’s Crypto Task Force Roundtable on Tokenization, Chair Atkins highlighted that nothing in the federal securities laws prohibits registered broker-dealers with an alternative trading system (ATS) from facilitating trading in non-securities, including via “pairs trading” between securities and non-securities, and has requested that the SEC staff modernize the ATS regulatory regime to better accommodate crypto assets.

Looking ahead, we anticipate the SEC and its policy divisions will continue to address challenging regulatory issues surrounding digital asset securities in an effort to develop a more hospitable regulatory framework.

[1] See Withdrawal of Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities, Division of Trading and Markets, U.S. Securities and Exchange Commission and Office of General Counsel, Financial Industry Regulatory Authority (May 15, 2025).

[2] See Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities, Division of Trading and Markets, U.S. Securities and Exchange Commission and Office of General Counsel, Financial Industry Regulatory Authority (Jul. 8, 2019).

[3] See Division of Trading and Markets: Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology (May 15, 2025).

[4] See Custody of Digital Asset Securities by Special Purpose Broker-Dealers, Exchange Act Rel. No. 34-90788 (Dec. 23, 2020), 86 FR 11627 (Feb. 26, 2021).

[5] See Hester M. Peirce, Lava and Lamps: Opening Remarks for Crypto Custody Roundtable (April 25, 2025).

[6] See Paul S. Atkins, Keynote Address at the Crypto Task Force Roundtable on Tokenization (May 12, 2025).

[7] See Staff Statement on Meme Coins (Feb. 27, 2025).

[8] See Statement on Certain Proof-of-Work Mining Activities, Division of Corporation Finance, U.S. Securities and Exchange Commission (Mar. 20, 2025).

[9] See Statement on Stablecoins, Division of Corporation Finance, U.S. Securities and Exchange Commission (Apr. 4, 2025).

[10] See Rule 15c3-1(c)(2)(vii) of the Exchange Act.

[11] See Paul S. Atkins, Keynote Address at the Crypto Task Force Roundtable on Tokenization (May 12, 2025).