SEC and FINRA Follow Suit with Other Regulators Opening Up Crypto Asset Custody
On May 15, 2025, the U.S. Securities and Exchange Commission (“SEC”) took significant actions towards facilitating the ability of broker-dealers to custody and transfer agents to record ownership of digital assets. Specifically, the SEC’s Division of Trading and Markets and FINRA’s Office of General Counsel formally withdrew a 2019 joint staff statement (“2019 Joint Statement”) that had previously outlined conditions for broker-dealer custody of crypto asset securities [1]. In its place, SEC staff issued new frequently asked questions (“FAQs”) designed to clarify how certain broker-dealer financial responsibility rules and transfer agent rules apply to crypto asset activities and blockchain technology [2].
The 2019 Statement was widely criticized for its restrictive approach, focusing almost exclusively on crypto asset “securities” and failing to address non-security crypto assets. It also left broker-dealers uncertain about how to demonstrate exclusive control over private keys and did not provide clear guidance on acceptable control locations for crypto asset securities. As a result, the industry found the 2019 Joint Statement to have limited practical value and to be misaligned with the operational realities of crypto asset custody.
The withdrawal of the 2019 Joint Statement and its replacement with the FAQs is a significant step in the current SEC leadership’s more flexible approach to regulating the crypto asset industry. As indicated by Commissioner Hester Peirce’s related statement, the new FAQs generally seek to provide clarity about the application of current rules to crypto assets and relief to accommodate certain nuances with respect to the custody of crypto assets [3]. However, Commissioner Peirce also noted that the FAQs are only an incremental step and that more comprehensive guidance—particularly on custody of crypto asset securities—is still needed. Below, we summarize the key points from the SEC’s May 15th actions and share our initial observations.
New SEC FAQs on Crypto Asset Activities and Custody
The FAQs appear intended to remedy much of the critiques of the 2019 Joint Statement and seek to provide practical guidance to market participants on the application of certain existing SEC rules to crypto assets for broker-dealers and transfer agents. The FAQs largely reaffirm existing requirements but also provide clarity for both crypto asset securities and non-securities crypto assets and provide relief to address the practical issues relating to crypto assets. Below is a summary of key SEC staff views from the new FAQs:
Custody of Non-Security Crypto Assets: Rule 15c3-3(b) (requiring broker-dealers to maintain possession or control) does not apply to crypto assets that are not “securities.”
Custody of Crypto Asset Securities and the SPBD Statement: Rule 15c3-3(b) does apply to crypto asset securities, but the FAQs confirm that broker-dealers can establish “control” of these assets under Rule 15c3-3(c), even if the assets are not in certificated form. According to the SEC staff, broker-dealers may use any qualifying control location as defined in Rule 15c3-3(c), including traditional third-party custodians such as U.S. banks, for uncertificated crypto asset securities.
SPBD Statement as Non-Exclusive Safe Harbor: The FAQs make clear that the SEC’s 2020 Statement on Custody of Digital Asset Securities by Special Purpose Broker-Dealers (the “SPBD Statement”) serves only as a non-exclusive safe harbor. Broker-dealers carrying crypto asset securities for a customer or proprietary account of another broker-dealer (“PAB account”) may establish control under Rule 15c3-3(c) without strictly adhering to the conditions SPBD Statement, provided they meet the rule’s requirements through other means.
Facilitating Spot Crypto Transactions for ETPs: Broker-dealers can participate in spot crypto transactions for exchange-traded product (“ETP”) in-kind creations and redemptions, provided the broker-dealer accounts for its proprietary positions in the underlying assets of the ETP in its Rule 15c3-1 net capital calculations.
Net Capital Treatment of Proprietary Positions in Bitcoin and Ether: The Staff will not object if a broker-dealer treats a proprietary position in bitcoin or ether as being readily marketable for purposes of determining whether the 20% haircut applicable to commodities under Appendix B of Rule 15c3-1 applies. While the FAQs referred only to bitcoin and ether, Commissioner Peirce separately noted in her statement that this does not mean that broker-dealers may hold only those crypto assets or that only those crypto assets may be readily marketable for purposes of the net capital rules. We recommend that firms obtain further guidance, however, before applying the 20% haircut to digital assets other than bitcoin or ether.
SIPA Coverage Limitations: The Securities Investor Protection Act (“SIPA”) does not apply to either (i) non-security crypto assets, or (ii) crypto asset securities that are unregistered investment contracts.
Transfer Agent Registration for Crypto Asset Securities: Whether a person must register as a transfer agent for providing services for crypto asset securities depends on whether both of the following conditions are met:
The crypto asset securities are registered under Section 12 of the Exchange Act (“Section 12 Securities); and
The services, functions, or activities the person is performing with respect to the Section 12 Securities qualify as “transfer agent” activities as defined in Section 3(a)(25) of the Exchange Act.
A person would be required to register as a transfer agent only if both conditions are satisfied.
Blockchain Technology as the Transfer Agent’s Official Master Securityholder File: The FAQs confirm that transfer agents may rely on distributed ledger technology for its official Master Securityholder File (or a component thereof), without the need for an off-chain duplicate or “digital twin”, provided that all other applicable federal securities law requirements are met, including recordkeeping, safeguarding and accounting controls. For example, sensitive personal information may be maintained off-chain, while transaction and ownership data can reside on-chain.
Observations and Practical Insights
Expanded Crypto Asset Business and Custody Flexibility. The collective conditions of the SPBD Statement resulted in a conditional safe harbor criticized for its restrictive scope (permitting custody only of crypto asset securities) and not fully appreciating how broker-dealers can demonstrate control of crypto assets. The FAQs address these limitations by explicitly clarifying that the SPBD Statement is a non-exclusive safe harbor. Broker-dealers may now custody crypto asset securities using good control locations under Rule 15c3-3(c), without adhering strictly to the SPBD Statement’s constraints.
This shift provides meaningful operational flexibility, allowing firms to select custody solutions better aligned with their business models and market practices. However, firms must still carefully evaluate how they demonstrate crypto asset securities control in compliance with Rule 15c3-3(c). While adherence to all conditions in the SPBD Statement is no longer mandatory to provide custody, certain recommended practices from it may remain beneficial to firms as a reference point.
Remaining Regulatory Uncertainty
Self-Custody: The FAQs clarify many custody-related issues, including that Rule 15c3-3(b) does not apply to non-security crypto assets—implying broker-dealers may self-custody these assets without specific custody restrictions. The FAQs, however, do not explicitly address self-custody of crypto asset securities. Currently, self-custody of crypto asset securities appears permitted only for broker-dealers relying on and adhering to the SPBD Statement’s strict conditions. Broker-dealers choosing to self-custody crypto asset securities outside the SPBD Statement framework continue to face regulatory uncertainty. Until further guidance is provided, firms seeking self-custody solutions must carefully align with either the existing SPBD Statement or clearly satisfy other traditional Rule 15c3-3(c) control location requirements.
Control Locations: The FAQs explicitly confirm broker-dealers may hold crypto asset securities at any control location defined under Rule 15c3-3(c), even if such securities are uncertificated. This clarification meaningfully expands permissible custody arrangements for crypto asset securities to include traditional third-party custody providers, such as U.S. banks. It may also facilitate cross-border custody solutions using foreign financial institutions. Despite this expanded flexibility, broker-dealers must continue rigorous due diligence of potential control locations, ensuring adequate security, operational safeguards, and compliance controls suited to crypto asset security custody risks.
Broker-Dealer Insolvency and SIPA: With SIPA protection explicitly unavailable for non-security crypto assets (and unregistered crypto asset securities), broker-dealers should consider exploring protective contractual arrangements to better safeguard customer assets in the event of insolvency. For example, the FAQs suggest firms might consider treating these crypto assets contractually as "financial assets" held in "securities accounts" under UCC Article 8. Although such arrangements could strengthen customers’ legal claims in insolvency scenarios, substantial risks remain. Broker-dealers must transparently disclose to customers the absence of explicit SIPA protection for non-security crypto assets (and unregistered crypto asset securities) and related risks.
Broker-Dealer Non-Securities Crypto Asset Business. The FAQs make clear that broker-dealers are not expressly prohibited from engaging in a non-securities crypto asset business. However, the SEC staff still emphasized the importance of recordkeeping and controls for such activities. Broker-dealers conducting non-securities crypto asset businesses should proactively maintain records consistent with securities-related standards, as good recordkeeping practices remain essential for investor protection, regulatory audits, examinations, and insolvency proceedings.
FINRA Membership and CMA Considerations. Broker-dealers planning new or significantly expanded crypto asset business lines must remain attentive to FINRA Rule 1017, requiring a Continuing Membership Application (“CMA”) for material business changes. This obligation applies irrespective of whether the crypto assets involved are classified as securities. Firms must prepare thoroughly for FINRA’s regulatory review, clearly outlining how their crypto asset activities would comply with SEC and FINRA Rules, including custody, net capital, and recordkeeping expectations articulated in the new FAQs. Broker-dealers should keep the potential to trigger Rule 1017 and FINRA’s guidance on crypto asset businesses in mind for business planning as they move forward.
Transfer Agents Using Blockchain as Official Record. The SEC FAQs confirm blockchain may serve as the official master securityholder file (or a component thereof) for transfer agents managing crypto asset securities, clarifying that a redundant off-chain system is not required, provided compliance with all applicable transfer agent rules is maintained. While blockchain can be the authoritative source for ownership records, firms must consider whether other securityholder information should be securely managed off-chain such as personal identifying information (e.g., tax IDs and account numbers). Whatever system-combination transfer agents’ select, they must maintain accurate, secure, and accessible records, ensuring SEC production requirements are continually met. This explicit regulatory acknowledgment represents a positive development toward broader blockchain adoption within the securities industry, including tokenization of securities.
Conclusions and Next Steps
The SEC’s withdrawal of the 2019 Joint Statement and issuance of the FAQs mark a significant step in clarifying the regulatory framework for broker-dealers and other market participants involved with crypto assets. Given ongoing industry engagement with Commissioner Peirce and the SEC’s Crypto Task Force, further evolution of these FAQs and associated guidance is likely and expected. Broker-dealers and market participants should stay alert to ongoing regulatory developments, consider actively participating in public comment processes, and continually evaluate evolving SEC and FINRA expectations. By remaining proactive, firms can better position themselves to innovate responsibly within an increasingly crypto-compatible financial regulatory environment.
If you have questions about this Client Alert or are interested additional details or guidance, please reach out to Gavin Meyers (gavin.meyers@pierferd.com), Jack Drogin (jack.drogin@pierferd.com), or your regular PierFerd contact for assistance.
Gavin Meyers is an experienced financial services regulatory lawyer and former FINRA attorney with a focus on representing broker-dealers, investment advisers, FinTech, and digital asset firms and projects on regulatory, enforcement and compliance matters.
Jack Drogin is an experienced securities regulatory attorney and former SEC attorney with over three decades of practice in the regulation of securities markets and securities professionals. He also has extensive fintech experience both in-house with a digital asset manager and in private practice.
This publication and/or any linked publications herein do not constitute legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, the author(s) and PierFerd assume no liability whatsoever in connection with its use. Pursuant to applicable rules of professional conduct, this publication may constitute Attorney Advertising. © 2025 Pierson Ferdinand LLP.
[1] SEC and FINRA, Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities (July 8, 2019) (Withdrawn May 15, 2025), available at https://www.sec.gov/newsroom/speeches-statements/joint-staff-statement-broker-dealer-custody-digital-asset-securities.
[2] SEC Division of Trading and Markets, Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology (Last Updated May 15, 2025), available at https://www.sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/frequently-asked-questions-relating-crypto-asset-activities-distributed-ledger-technology.
[3] Statement of Commissioner Hester M. Peirce, An Incremental Step Along the Journey: The Division of Trading Markets’ Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technologies (May 15, 2025), available at https://www.sec.gov/newsroom/speeches-statements/peirce-tm-faq-051525.
[4] Custody of Digital Asset Securities by Special Purpose Broker-Dealers, Exchange Act Rel. No. 90788 (Dec. 23, 2020).