SEC’s Division of Trading and Markets Issues New FAQ Guidance on Broker-Dealer Custody and Net Capital Treatment of Cryptoassets

The Securities and Exchange Commission (SEC) has taken a significant step toward permitting broker-dealers to custody digital assets and toward accounting for such proprietary digital assets in a broker-dealer’s net capital computation. On May 15, 2025, the SEC’s Division of Trading and Markets released a new FAQ titled “Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology,” while simultaneously withdrawing its 2019 Joint Statement with the Financial Industry Regulatory Authority (FINRA) on the broker-dealer custody of digital asset securities. The new FAQ marks a notable shift from Division staff’s cautious approach in the 2019 Joint Statement, offering more practical pathways for broker-dealers to establish possession and control over “crypto assets that are securities”, in compliance with Rule 15c3-3 under the Securities Exchange Act of 1934, as amended (Customer Protection Rule). The update follows the SEC’s April roundtable on crypto custody challenges.

Previous SEC and FINRA Guidance on Custody of Cryptoasset Securities

The SEC’s 2019 Joint Statement with FINRA took a notably cautious stance on broker-dealer custody of “digital asset securities.” That statement expressed significant concerns about whether broker-dealers could comply with the Customer Protection Rule when custodying digital asset securities, emphasizing that digital assets create risks of fraud, theft and irreversible transfers.

This earlier guidance effectively steered broker-dealers away from direct custody by suggesting that “noncustodial activities involving digital asset securities do not raise the same level of concern.” The statement provided examples of permissible non-custodial models while explicitly stating 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 indicated above, the SEC and FINRA withdrew this Joint Statement concurrently with the SEC’s issuance of the FAQ guidance.

The SEC followed the 2019 Joint Statement with the 2020 “Special Purpose Broker-Dealer” statement (SPBD Statement). This five-year position (set to expire in April 2026) outlined nine specific circumstances under which a broker-dealer would not face SEC enforcement action for deeming itself to have possession or control of customer digital asset securities. These conditions included requiring the broker-dealer to limit its business exclusively to digital asset securities, implement policies to assess distributed ledger technology, demonstrate exclusive control over private keys, establish procedures for responding to blockchain disruptions, and provide specific disclosures to customers about the risks of digital asset securities. The SPBD Statement remains in effect, but Commissioner Hester Peirce solicited comments during the Crypto Custody Roundtable on whether it should be withdrawn and, as discussed below, the new FAQ guidance ameliorates some of the impact of the rigid SPDB Statement.

New Pathway for Broker-Dealer Custody of Cryptoassets

The new FAQ represents a clear shift in approach. Most significantly, the Division clarified in Question 3 of the FAQ that the SEC’s 2020 SPBD Statement’s framework is not mandatory for broker-dealers seeking to custody customer cryptoassets that are securities. Instead, the FAQ states plainly that “a broker-dealer carrying crypto asset securities for a customer or PAB account may establish control under paragraph (c) of Rule 15c3-3.”

This guidance effectively opens standard “good control location” provisions to cryptoasset securities, even acknowledging in Question 2 that “the Staff will not object if such crypto asset securities are not in certificate form when held at an otherwise qualifying control location under paragraph (c) of Rule 15c3-3.” These clarifications remove significant barriers that previously limited broker-dealer participation in digital asset markets. Importantly, the FAQ also makes clear (see FAQ #1) that the possession and control requirements of the Customer Protection Rule do not apply to cryptoassets that are not securities.

Significantly, the new FAQ #4 clarifies that proprietary positions in bitcoin and ether are “readily marketable” and, therefore, may be used in the broker-dealer’s net capital computations, subject to the same haircut treatment as other commodities under Appendix B of SEC Rule 15c3-1. This is a substantial concession from the SEC’s previous requirement of a 100% haircut for these cryptoassets. The FAQ also provides helpful analysis on the application of SIPA and transfer agent requirements to crypto assets that are securities.

Terminology and Scoping Questions Remain

Despite providing guidance on custody of cryptoassets by broker-dealers and other regulatory requirements, the FAQ leaves for another day how one should determine whether a cryptoasset is or is not a security. (SEC Crypto Task Force Chair Hester Pierce, in her statement announcing the FAQs characterized them as an “incremental step along the journey”). The FAQ uses the phrase “crypto asset that is a security” throughout the document without definition, leaving market participants to decide for themselves which tokens might fall under this classification.

Determining whether a cryptoasset transaction constitutes an investment contract and thus a security requires a transaction-by-transaction analysis under the Howey test and its progeny.  Courts have consistently held that digital assets themselves are not inherently securities, but rather certain offerings, sales, or transactions involving those assets may constitute investment contracts.[1] The FAQ’s terminology does not fully reflect this important distinction, and questions over the meaning of the term “crypto asset securities” continue to linger. The FAQ nevertheless provides important guidance for those cryptoassets clearly characterized one way or the other and sets up “plug-and-play” guidance as the SEC answers the ultimate question of cryptoasset security status.[2]

[1]See, e.g., SEC v. Ripple Labs, Inc., No. 20 Civ. 10832 (S.D.N.Y. July 13, 2023).  See Katten’s Quick Reads coverage of the Ripple decision here.

[2]See Katten’s Quick Reads coverage of recent SEC staff statements regarding the classification of memecoins, proof-of-work mining, stablecoins here and here.