The SEC’s Division of Trading and Markets has released some FAQs to help explain how financial responsibility and transfer agent rules are applied in the crypto asset and DLT context. The release of these FAQs echoes the SEC Commissioner Hester Peirce’s prior emphasis on the need for regulatory clarity in the area of digital assets.
The purpose of these FAQs is to help around the principles of traditional securities laws and how they relate to current uses of crypto businesses. Although most of the clarifications repeat what is already in regulations, they still provide helpful information to broker-dealers and transfer agents working with cryptocurrencies.
It is important to remember that Rule 15c3-3 deals solely with securities and not other types of investments. As a result, broker-dealers that offer non-security crypto assets to their clients do not have to follow the rule. As a result, users can now understand the different custody needs for securities and non-securities in digital assets.
Net capital treatment for Bitcoin and Ether is further explained, as these assets are the only two underlying ETPs available on U.S. securities exchanges. Regardless of this point, the SEC adds that it does not mean only Libra can be considered “readily marketable” and keeps the door open for other crypto assets.
It is important to note that securities rules do not apply to those forms of crypto assets handled by broker-dealers, since SIPA only covers securities. It reminds investors to be aware of the possible risks when investing through traditional financial institutions.
The FAQs for transfer agents explain that using distributed ledger technology is allowed within the Master Security Holder File. It means firms thinking about using tokenized securities and blockchain can now look ahead.
Although the SEC’s FAQs represent a little improvement, more thorough advice is still required, particularly about the regulation of digital assets and the custody of tokenized securities.
Commissioner Peirce states, “These FAQs are incremental, not comprehensive. The staff and the Commission still have much more work to do. ” She also revealed that many market participants have urged to replace the special purpose broker-dealer statement.
With the crypto industry growing in a positive direction, participants are expecting a more fit-for-purpose statement addressing how broker-dealers may custody crypto assets that are securities, including tokenized versions of traditional securities.
As regulatory discussions continue, industry stakeholders are still pushing for more precise, customised regulations, even though the Special Purpose Broker-Dealer (SPBD) framework provides a non-exclusive safe harbour
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