The U.S. Securities and Exchange Commission (SEC) issued new guidance in the form of a series of Frequently Asked Questions (FAQs) on how existing securities laws apply to activities involving crypto assets and distributed ledger technology (DLT). This move is made to bring much-needed clarity for broker-dealers and transfer agents navigating the shifting digital asset ecosystem.
Key Highlights of the SEC’s Updated Guidance
The SEC Division of Trading and Markets published the FAQs to clarify how historical securities regulations extend to crypto assets and DLT. Of particular note is the clarification regarding Exchange Act Rule 15c3-3, which is the rule on custody of securities by broker-dealers. The SEC confirmed that this rule applies only to securities and not to non-security crypto assets such as Bitcoin and Ether. As such, broker-dealers who possess these non-security assets on behalf of customers are not subject to the custody requirements of the rule.
Further, the FAQs also cover the application of DLT by transfer agents. The SEC verified that registered transfer agents are permitted to use DLT as their master securityholder file or as part of it. This recognition paves the way for companies contemplating the issuance of tokenized securities and the incorporation of blockchain technology into their business.
Commissioner Hester Peirce made a comment on the release, saying, “These FAQs are incremental, not comprehensive. The staff and the Commission still have much more work to do.” She was clear in calling for additional guidance, especially with regard to the regulation of digital assets and custody of tokenized securities.
Implications for the Crypto Industry
The SEC’s new guidance is a step in the direction of regulatory clarity for crypto industry participants. By outlining the application of existing rules to crypto assets and DLT, the SEC is offering broker-dealers and transfer agents a way to navigate compliance obligations.
But the guidance also highlights the intricacies that come with regulating virtual assets. The difference between securities and non-securities continues to be a key issue, determining how different crypto assets are handled according to the law. The SEC’s recognition that non-security crypto assets lack protection under the Securities Investor Protection Act (SIPA) similarly emphasizes the importance of investors knowing the risks of holding such assets through broker-dealers.
Industry stakeholders have welcomed the SEC’s efforts but continue to advocate for more comprehensive and tailored regulations. The evolving nature of the crypto market necessitates ongoing dialogue between regulators and market participants to ensure that the regulatory framework keeps pace with technological advancements and market developments.
Also read: Coinbase Expands Wrapped Token Offerings with cbLTC, cbADA, cbDOGE, and cbXRP
