The U.S. Securities and Exchange Commission (SEC) has released a new set of Frequently Asked Questions (FAQs) addressing the treatment of crypto asset activities and the use of distributed ledger technology (DLT) by broker-dealers and transfer agents. While these updates fall short of delivering comprehensive reform, they provide much-needed incremental guidance for market participants operating at the intersection of traditional securities laws and digital assets.

This move echoes Commissioner Hester Peirce’s long-standing call for regulatory clarity in the digital asset space. The new guidance seeks to bridge legacy financial regulations with emerging blockchain technologies, offering practical insights for firms navigating these evolving rules.

Bridging Traditional Securities Law with Crypto

The SEC’s FAQs focus on the applicability of existing financial responsibility rules—particularly Rule 15c3-3—within the crypto asset ecosystem. Rule 15c3-3 pertains solely to securities, which means that broker-dealers dealing in non-security crypto assets (like Bitcoin or Ether) are not subject to its provisions. This distinction is crucial, as it draws a regulatory line between different categories of digital assets and their custody requirements.

The FAQs help clarify that while broker-dealers offering non-security crypto assets don’t have to follow Rule 15c3-3, those dealing with securities—including tokenized securities—do. This guidance allows firms to better understand the varying custody obligations for different types of assets and adjust their operational frameworks accordingly.

Net Capital and Custody Considerations

Another significant clarification comes regarding the net capital treatment of crypto assets. The SEC reaffirms that Bitcoin and Ether are the only crypto assets currently underlying exchange-traded products (ETPs) available on U.S. securities exchanges. As such, they receive special consideration in capital calculations. However, the SEC is careful to note that this does not mean these are the only assets that could be deemed “readily marketable” in the future, leaving the door open for other digital assets as the market matures.

The guidance also touches on the limitations of the Securities Investor Protection Act (SIPA), reminding investors and institutions that SIPA protections apply only to securities. This means that non-security crypto assets held through traditional financial institutions may not be covered, underscoring the need for investors to understand the risks involved.

Embracing DLT in Transfer Agent Operations

For transfer agents, the FAQs offer a notable development: the SEC has confirmed that distributed ledger technology may be used within the Master Security Holder File. This paves the way for firms to explore blockchain-based systems to manage tokenized securities. While this isn’t a wholesale endorsement of DLT in all areas of securities processing, it is a meaningful acknowledgment of blockchain’s potential to enhance recordkeeping and compliance functions.

This update may encourage further innovation among transfer agents looking to leverage smart contracts and tokenized registries while remaining compliant with existing regulations.

Calls for Comprehensive Reform Persist

Despite these developments, the FAQs remain limited in scope. Commissioner Hester Peirce has acknowledged the incremental nature of the update, stating: “These FAQs are incremental, not comprehensive. The staff and the Commission still have much more work to do.” She highlighted the need for more robust guidance, particularly in replacing the existing Special Purpose Broker-Dealer (SPBD) framework, which many in the industry view as outdated.

Stakeholders continue to call for a more tailored regulatory approach that reflects the unique characteristics of digital assets. Specifically, there is demand for a modernised framework that outlines how broker-dealers can safely custody crypto assets that qualify as securities, including tokenized versions of traditional financial instruments.

The SEC’s latest FAQs are a step in the right direction, offering clarity on several operational and compliance issues affecting broker-dealers and transfer agents in the crypto space. However, as the digital asset landscape continues to evolve, more comprehensive regulatory guidance will be essential. Until then, market participants will need to interpret and adapt within the bounds of existing frameworks—while continuing to advocate for regulations that match the pace of technological innovation.