The SEC issued clarifying guidance on crypto custody under Rule 15c3-3 in a Division of Trading and Markets statement explaining how broker-dealers can meet customer protection obligations when holding crypto asset securities.
For crypto asset securities, a broker-dealer may be deemed to have “physical possession or control” when it maintains exclusive control over the private keys needed to access and transfer those assets, according to the Division of Trading and Markets. Rule 15c3-3, the Customer Protection Rule, requires broker-dealers to safeguard customer assets, and the guidance ties compliance to demonstrable control rather than literal key-holding in every instance. It permits qualified third-party custodians so long as the broker-dealer retains ultimate oversight and accountability.
Operational expectations are strict. Broker-dealers must demonstrate exclusive control over keys, robust security protocols such as strong cryptography and hardware security modules, role-based access and audit trails, reliable recovery processes, and resilience against technical failures. The statement also requires contingency plans for “blockchain malfunctions”—including chain forks, consensus failures, or severe delays in transaction finality—with mitigation that includes monitoring, incident response, and engagement with network maintainers.
ATS scrutiny and exchange-definition reforms
The December guidance rescinds Staff Accounting Bulletin 121, removing a major balance-sheet impediment that had discouraged banks from offering custody, a change the SEC says will facilitate broader institutional participation. Implication for traders and managers: custody risk profiles shift toward institutional operational controls and counterparty oversight, and firms should reassess hedging, credit allowances, and operational playbooks ahead of the compliance window.
The SEC has signaled closer scrutiny of trading platforms that handle crypto asset securities. The agency’s Spring 2025 Regulatory Agenda contemplates amendments to Exchange Act rules that could revise how “exchange” is defined, with direct implications for ATSs. Platforms trading crypto asset securities classified as NMS stocks remain subject to Rule 304 of Regulation ATS, and the SEC has indicated enforcement priority on platforms that may be operating as unregistered exchanges or that fail to meet transparency and system-integrity standards.
Market integrity concerns focus on manipulation risks and weakened transparency on unmonitored venues, prompting examinations that, along with 2026 priorities, place alternative investments and complex products under more intensive review—implicitly flagging crypto trading systems.
