SEC guidance on broker-dealer custody of digital asset securities

Abstract

Purpose

To explain how the U.S. Securities and Exchange Commission (SEC), in its Digital Asset Securities Release, issued on December 23, 2020, laid out its vision for how broker-dealers can comply with the custody requirements of Rule 15c3-3 under the Exchange Act (the Customer Protection Rule) for investments in digital asset securities.

Design/Methodology/Approach

Explains the current regulatory uncertainty for broker-dealers doing a business in digital asset securities and developing systems and procedures that result in compliance with the custody requirements of the Customer Protection Rule; seven minimum steps that broker-dealers can take and nine terms and conditions with which they can comply to protect against SEC enforcement action; and the SEC’s request for comment in response to its position statement.

Findings

A broker-dealer operating pursuant to the terms and conditions of the position statement articulated in the Release will not be subject to SEC enforcement action on the basis that the broker-dealer deems itself to have obtained and maintained physical possession or control of customer fully paid and excess margin digital asset securities for the purposes of paragraph (b)(1) of the Customer Protection Rule.

Originality/Value

Practical guidance from experienced financial services, broker-dealer and securities lawyer.

Citation

Smith, H. (2021), "SEC guidance on broker-dealer custody of digital asset securities", Journal of Investment Compliance, Vol. 22 No. 2, pp. 189-194. https://doi.org/10.1108/JOIC-04-2021-0013