The US Securities and Exchange Commission (SEC) has clarified how registered broker-dealers can legally hold crypto assets that qualify as securities, shedding light on how decades-old custody rules may be interpreted in the age of blockchain-based instruments.
In a staff statement published on Wednesday, the SEC’s Division of Trading and Markets said it would not object to broker-dealers treating certain digital asset securities as being in their “physical possession” under the customer protection rule, provided firms meet strict operational and risk-management standards.
In the US, a broker-dealer is classified as any regulated financial firm that buys and sells securities for clients and, in some cases, holds assets on their behalf.
The SEC acknowledged as far back as 2020 that those could include digital securities, at least in theory. But firms lacked a clear take on how decades-old “physical possession or control” rules applied to them.
The latest SEC statement applies to tokenised equities and debt securities carried for customer accounts and is intended as interim guidance while the agency continues to assess broader custody issues.
The move gives broker-dealers a clearer framework for offering custody of blockchain-based securities without rewriting existing rules, at a time when institutional interest in tokenised financial instruments is accelerating.
Focus on control, not labels
The SEC’s position centres on whether a broker-dealer genuinely controls a crypto asset security, rather than where it is labelled as being held.
Under the new guidance, firms must have direct access to the asset and the technical ability to transfer it on the underlying network, rather than relying on third parties with effective control over settlement.
Private key management sits at the core of the framework. The statement emphasises that broker-dealers must maintain exclusive control over the private keys required to move crypto asset securities, preventing customers or affiliates from initiating transfers without authorisation.
Crucially, the guidance ties custody to the integrity of the underlying blockchain.
Broker-dealers are expected to assess the distributed ledger technology used to record ownership and to avoid taking custody if they are aware of material security or operational weaknesses that could undermine safekeeping.
It made clear that custody cannot be deemed compliant if known network risks threaten a firm’s ability to access or transfer customer assets.
Key points
- Broker-dealers can now custody crypto assets that qualify as securities if they meet existing customer protection rules, offering long-sought operational clarity rather than a new crypto-specific regime.
- Raises the bar on custody standards, requiring firms to control private keys, assess blockchain risks and plan for forks, outages and insolvency, making compliance more demanding rather than easier.
- Comes amid institutional integration of crypto into US market infrastructure, even as Congress remains stalled on broader market structure legislation.
Preparing for crypto shocks
The SEC also addresses a long-standing tension between traditional custody models and crypto-native events.
Broker-dealers are expected to have policies in place to handle disruptions such as blockchain outages, forks, or other protocol-level changes, as well as mechanisms to comply with lawful orders affecting transfers.
The guidance requires firms to plan for continuity in the event of failure, including the orderly transfer of customer assets to another regulated entity if a broker-dealer can no longer operate.
For retail investors, the statement signals that holding tokenised securities through a registered broker-dealer could increasingly resemble traditional custody arrangements, though with added exposure to blockchain-specific risks.
For institutional custodians and broker-dealers, it offers a practical compliance roadmap rather than a theoretical debate about whether crypto can fit inside existing rules.
The statement does not carry the force of law and leaves broader custody questions unresolved. But it marks another incremental step by US regulators toward integrating tokenised securities into the regulated financial system, even as Congress continues to debate wider crypto market structure legislation.
