SEC Issues Statement and Requests Comment Regarding the Custody of Digital Asset Securities
The SEC recently issued a statement and request for comment regarding the custody of digital asset securities by broker-dealers in order to encourage innovation around the application of Securities Exchange Act Rule 15c3-3 to digital asset securities.
The statement sets forth the SEC’s position that, for a period of five years, a broker-dealer operating under the circumstances set forth in the statement will not be subject to a Commission 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 Rule 15c3-3.
The five-year period is designed to provide market participants with an opportunity to develop practices and processes that will enhance their ability to demonstrate possession or control over digital asset securities. It also will provide the SEC with experience in overseeing broker-dealer custody of digital asset securities to inform further action in this area.
The SEC lays out nine criteria for the circumstances under which a broker dealer will not be subject to an enforcement action; including, among other things, that the broker-dealer limits its business to digital asset securities, establishes and implements policies and procedures reasonably designed to mitigate the risks associated with conducting a business in digital asset securities, and provides customers with certain disclosures regarding the risks of engaging in transactions involving digital asset securities.
The list of circumstances and caveats may place reliance on the SEC’s statement out of reach for most broker dealers, but it nonetheless shows the SEC’s policy is evolving with respect to the agency’s oversight of digital asset securities.