SEC Clarifies Crypto Custody Rules for Broker-Dealers

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Broker-dealers must maintain exclusive control of private keys to comply with custody rules for “crypto asset securities,” according to new guidance from the US Securities and Exchange Commission. The guidance addresses applying the traditional “physical possession or control” standard of the Customer Protection Rule to digital assets on a blockchain.

The SEC defines the assets in scope to encompass tokenized versions of conventional securities like stocks or bonds. This reflects the regulator’s growing focus on this specific niche within the broader digital asset ecosystem.

The SEC’s trading and markets division framed the published views as a provisional step. This interim guidance responds to market participant requests while the Commission deliberates on the wider topic of crypto custody by broker-dealers.

Under the new framework, control is established when a broker-dealer has sole authority over the relevant private keys. This control must be backed by robust, written policies and procedures that actively protect those keys from unauthorized access, loss, or theft.

A firm cannot consider itself in possession of a crypto asset security if it knows of material technological problems with the underlying blockchain network or other substantial risks to its business from holding the asset.