SEC Signals Regulatory Shift
Crypto FAQs and Custody Guidance Withdrawal
On May 15, 2025, the U.S. Securities and Exchange Commission (SEC) took a bold step forward in digital asset regulation. It released updated FAQs on crypto asset activities and distributed ledger technology while withdrawing its restrictive 2019 Joint Staff Statement with FINRA on broker-dealer custody of digital assets, signaling a more flexible and modern approach to oversight in this fast-evolving space.
What’s New in the FAQs?
The updated guidance from the SEC’s Division of Trading and Markets offers clarity and flexibility for broker-dealers and transfer agents handling crypto assets. Here are the key takeaways:
Broker-Dealers: Greater Flexibility for Custody
- Crypto Custody Expanded: Broker- dealers can custody both securities and non-security crypto assets without adhering to the older, more rigid Special Purpose Broker-Dealer (SPBD) framework.
- Rule 15c3-3 Clarified: The SEC confirmed that crypto assets not classified as securities are not subject to its Customer Protection Rule. Crypto assets that are securities can be held in uncertificated form at qualifying “good control” locations like banks.
- Capital Treatment Improved: Bitcoin and Ether are now deemed “readily marketable” for capital requirements under Rule 15c3-1. Broker-dealers can apply a favorable 20% haircut instead of the punitive 100% applied previously.
- ETP Facilitation Allowed: Broker-dealers may now facilitate in-kind creations and redemptions for spot crypto Exchange-Traded Products (ETPs), opening the door to broader crypto market participation.
Investor Protection and Insolvency
- SIPA Protection Limited: Only registered securities qualify for Securities Investor Protection Corporation (SIPC) coverage. Non-security crypto assets, including unregistered investment contracts, remain outside of SIPC’s protection.
- Mitigation Option: Broker- dealers can opt into protections under the Uniform Commercial Code (UCC) to shield customer assets in case of insolvency.
Transfer Agents and Blockchain
- Transfer Agent Use of Blockchain Approved: Transfer agents can officially use blockchain to maintain master securityholder records, provided the records are secure, accurate, and accessible to the SEC.
- No Blanket Registration: Not all entities handling crypto securities must register as transfer agents; it depends on the specific services they perform and whether the assets are registered under the Exchange Act.
Broader Context and Implications
This update marks a notable departure from the SEC’s historically cautious stance, particularly the withdrawn 2019 Joint Statement, which had essentially deterred broker-dealers from direct custody of crypto assets due to perceived compliance challenges.
While the new FAQs do not have the force of law, they reflect a significant softening of the SEC’s approach. The SEC and FINRA are signaling a readiness to engage with industry players and build a more practical, rule-based framework for the crypto sector.
SEC Commissioner Hester Peirce called the release “incremental, not comprehensive,” acknowledging ongoing gaps — notably around how to classify whether a crypto asset is a security under the Howey test.
The Bottom Line
The SEC’s May 2025 FAQs represent a regulatory turning point, offering more viable paths for traditional financial institutions to enter the crypto space. Broker-dealers and transfer agents now have clearer compliance guidance, easing previous limitations and paving the way for increased integration of crypto into mainstream financial markets.
How does this impact Employee Compliance Officers? If your firm takes advantages of the SEC’s more specific guidance to offer digital custody and safekeeping services, inquiries should be made regarding potential conflicts of interest and the ability to monitor firm, customer, and employee digital asset activities.
At StarCompliance (Star), we offer the ability for firms to monitor everything from blockchain to exchanges with pre- and post-trade monitoring, leveraging certifications & attestations and reporting & analytics.
Stay tuned as Star continues to provide updates on industry news, including the SEC’s progress toward a formal rulemaking regime for crypto asset regulation.
To learn more about Star’s Employee Conflicts of Interest suite of products, including its Crypto Trading Compliance software, schedule a personalized demo here.
Crypto Regulations Decoded
