On May 15, 2025, the U.S. Securities and Exchange Commission's Division of Trading and Markets ("Staff") published a set of Frequently Asked Questions (FAQs) offering long-awaited clarity for SEC-registered broker-dealers and transfer agents engaging in crypto asset-related activities.
Issued alongside FINRA and accompanied by the formal withdrawal of the 2019 Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities, this update is a meaningful step forward. It signals the Staff's intent to move past defensive postures and toward practical, systems-level integration of crypto asset infrastructure into the legacy securities framework.
To be clear: the FAQs don't alter statutory obligations or override the SEC's 2020 Special Purpose Broker-Dealer ("SPBD") Statement. But what they do provide is a viable, operational path for traditional broker-dealers to custody crypto asset securities—without siloed carveouts or regulatory acrobatics.
Let's break down what matters, and why this shift should be on the radar of every compliance officer, digital asset GC, and prime services executive with an eye on the evolving intersection of finance and blockchain.
I. Broker-Dealer Custody: Rule 15c3-3 Revisited and Modernized
At the heart of the update is a nuanced but impactful interpretation of SEC Rule 15c3-3, the Customer Protection Rule.
Historically, broker-dealers seeking to custody crypto asset securities faced an uphill battle. The 2019 Joint Staff Statement sowed uncertainty around whether standard "good control" locations were sufficient under Rule 15c3-3(c), while the 2020 SPBD Statement provided only narrow—and impractical—relief for most firms.
The May 2025 FAQs rewrite that script.
Key Takeaways:
- Rule 15c3-3 applies only to crypto assets that are securities. Non-securities (e.g., Bitcoin, Ether) are outside its scope.
- Broker-dealers can custody crypto asset securities in a qualified bank, so long as the bank provides the required no-lien acknowledgment under Rule 15c3-3(c)(5).
- The same broker-dealer can simultaneously custody traditional securities, crypto securities, and crypto non-securities—no SPBD designation required.
This change removes a major compliance and operational barrier that kept legacy firms out of the digital asset custody market. The door is now open—granted, still flanked by expectations around recordkeeping and auditability, but open nonetheless.
II. Recordkeeping, Verification & Audits: Don't Skip the Boring Stuff
The Staff makes clear that custody brings obligations. Broker-dealers electing to carry crypto asset securities for customers must:
- Maintain stock records under Rule 17a-3;
- Conduct quarterly counts under Rule 17a-13; and
- Undergo annual audits of financial controls pursuant to Rule 17a-5(d)(3), in line with PCAOB standards.
This isn't light lifting. Broker-dealers must be able to demonstrate possession or control of digital asset securities—not just in theory, but in a way an external auditor can validate.
Translation? If your tech stack can't speak PCAOB, it's time to upgrade or partner.
III. ETP Participation: Spot Crypto Creations, Redemptions, and Net Capital Relief
Another headline from the FAQs: Broker-dealers may now facilitate in-kind creations and redemptions for spot crypto exchange-traded products (ETPs).
Previously, firms were told to stay in the cash lane. Now, the SEC Staff says broker-dealers may:
- Receive and transmit crypto assets (e.g., Bitcoin, Ether) in the ETP share creation/redemption process;
- Hold proprietary positions in those assets; and
- Apply the 20% "readily marketable commodity" haircut under Rule 15c3-1, instead of the punitive 100% treatment applied to non-marketable securities.
This is a quiet but powerful unlock for broker-dealers looking to support regulated access to crypto markets. It's not a green light for speculative crypto prop trading, but it does provide a capital-efficient mechanism to support liquidity and execution in the rapidly growing ETP market.
IV. SIPA Limitations: Still No Safety Net for Bitcoin (Unless You're Creative)
The FAQs reaffirm what most in the industry already knew: SIPA does not apply to non-security crypto assets. That means no automatic protection for customer deposits of Bitcoin, Ether, or similar instruments in the event of a broker-dealer insolvency.
That said, the Staff suggests a workaround: opt-in structures under Article 8 of the UCC. By contractually defining customers' interests as securities entitlements, firms can strengthen legal claims to exclude assets from the broker-dealer's estate in liquidation.
In plain English: you can't make SIPA apply, but you can draft your way toward a stronger client position.
V. Transfer Agents: DLT Now in the Regulatory Blueprint
Transfer agents aren't left out of the conversation. The FAQs affirm that:
- DLT can be used to maintain master securityholder files, with some data recorded on-chain and some off-chain;
- Records must still meet federal standards for accessibility, accuracy, and reproducibility;
- Not all crypto asset-related transfer agent activity triggers registration, depending on the nature of the securities handled.
This represents a formal nod from the SEC that blockchain-based registrar systems can meet the functional requirements of federal securities law—provided the architecture is sound.
Putting It All Together: Compliance Optionality and Strategic Access
Let's not get ahead of ourselves—these FAQs are not binding law, and the Staff is explicit about their nonbinding nature. But the practical effect is clear: regulatory optionality has expanded, and market participants now have something they've long lacked—a map, if not yet a mandate.
Firms considering crypto-native services—whether custody, clearing, or tokenized post-trade—now have a clearer view of how to proceed. The FAQs offer a model for integration, not isolation. They also hint at an institutional future for digital assets that doesn't require abandoning the regulatory scaffolding of U.S. securities law.
Final Thoughts: A Window Worth Climbing Through
The May 2025 FAQs aren't perfect. They don't answer every question. They don't settle the broker-vs-finder wars. They don't get us to a harmonized regulatory regime across the SEC, CFTC, and state actors.
But they do something critical: they validate a model where broker-dealers and transfer agents can service crypto assets—legally, operationally, and audibly.
For those of us advising clients in this space for years, this moment feels earned.
I've been working with crypto and fintech clients since 2018—when custody was still theoretical and bank compliance teams panicked at the word "token." It's been fascinating to watch this sector mature under pressure. And now, with regulatory oxygen finally flowing, we're about to see what institutional crypto can really look like.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
