The SEC has updated its crypto asset FAQ, clarifying how broker-dealers like Morgan Stanley, Goldman Sachs and others can meet custody and capital requirements for crypto assets, and how the framework applies to Bitcoin and Ethereum ETF activities.
The update appears in the Trading and Markets FAQ Index as “Frequently Asked Questions Related to Crypto Asset Operations and Distributed Ledger Technology (May 15, 2025) – UPDATED December 17, 2025.”
It gives companies an up-to-date, staff-posted reference as custody design becomes a gateway item for distributing tokenized securities and creating ETP markets.
How the SEC’s updated custody guidelines are reshaping brokers’ control over crypto assets
In the FAQ text, the staff reiterates that Rule 15c3-3(b) “possession or control” does not apply to unsecured cryptocurrencies held by broker-dealers, leaving unsecured cryptocurrencies outside the Customer Protection Rule mechanisms applicable to the custody of securities.
For cryptoasset securities, the staff says a broker-dealer can establish “control” under Rule 15c3-3(c), even if the instrument is not certified, by using qualifying control locations.
The staff also says this approach reduces reliance on the special-purpose broker-dealer (SPBD) safe harbor as the primary route for demonstrating control over these securities.
The staff also says it would not object to broker-dealers who facilitate in-kind creations and redemptions treating proprietary positions in bitcoin or ether as “readily tradable” for net capital purposes.
That would apply the 20% commodity discount under Rule 15c3-1 Appendix B when calculating the deductions.
These staff functions are now accompanied by a formal purge of previous messages.
How the SEC’s withdrawal is reshaping “control” in crypto asset custody
The 2019 SEC-FINRA Joint Statement on Custody of Digital Assets by Brokers and Dealers is marked as withdrawn on the SEC recording page, with a parallel notice posted by FINRA.
The repeal limits the “north star” of broker-dealer custody to the FAQ framework and its stated use of existing control location concepts for crypto-asset securities.
The most operationally sensitive issue is what is required in practice to comply with the Rule 15c3-3(c) concept of “control” when recording securities on a blockchain.
The FAQ does not say that a broker-dealer must have private keys, but 15c3-3(c) control is tied to securing and directing the movement of customer securities at a recognized control location.
For on-chain instruments, this often comes down to who can sign or force signing through the save stack.
Examples include key material held by a broker-dealer in an HSM, a bank control location where the broker-dealer has documented directive rights, or a multi-signature arrangement where the broker-dealer’s signing authority and procedures are designed to meet the expectations of the control location.
Law firm summaries have emphasized that the staff’s approach broadens the path for mainstream broker-dealers to evidence review without leaning on SPBD status as the default position.
According to Sullivan & Cromwell and Sidley Austin, this shift increases the focus on contract language, key management and the audit trail that demonstrates control over time.
On ETP rails, the “easily tradable” attitude for proprietary bitcoin and ether positions is directly related to the intraday stock economics for authorized participants and market makers supporting in-kind baskets.
A sketch of capital efficiency shows the direction: If an affiliated broker-dealer carries an average intraday inventory of $50 million in BTC or ETH to facilitate creations and redemptions, a 20% commodity discount implies a net capital allowance of approximately $10 million tied to that inventory.
This arithmetic is not a complete net capital model, but it does explain why some agencies prefer cash workflows and why the treatment of personnel can make in-kind operations more workable for firms operating with tight spreads.
Bank partnerships may also face fewer procedural hurdles than in previous cycles
The Federal Reserve on April 24, 2025, withdrew previous oversight letters that had set advance expectations for certain crypto asset and dollar token activities, shifting banks’ involvement toward more routine supervisory channels.
For broker-dealers who rely on bank sub-custody as a control location pathway, that shift is important because it can shorten the path from concept to bank-side supervisory discussion.
Broker-dealers must still demonstrate 15c3-3(c) control and records in a way that exam teams can test.
Over the next twelve to eighteen months, the custody market may cluster around which structures produce repeatable evidence of control while limiting cyber and operational exposure.
Broadly speaking, the issue often revolves around whether the broker-dealer has direct control over the key material, or whether it evidences directive control through a qualifying third-party control location.
Each option balances administrative burden, incident response design, and examiner comfort.
| Scenario (12–18 months) | Where control is (signing or directing authority) | Primary operational advantage | Main execution risk |
|---|---|---|---|
| Broker-dealer self-custody | Broker-dealer controlled keys (HSM or multisig) | Direct evidence trail for 15c3-3(c) audit | Cyber controls, insurance limits, auditability at scale |
| Sub-custodianship of the bank with broker-dealer directive rights | Bank as control location, broker-dealer directs movements | Well-known retention perimeter for incumbents | Contract conditions and scripts must prove control in the event of incidents |
| Crypto custodian technology with bank or trust wrapping | Specialist tooling, control framed through agreements | Integration speed for tokenized security workflows | Qualification of control locations and consistency of supervision |
| Smart-contract escrow with co-signing by the transfer agent | Multisig between broker-dealer and transfer agent | Programmable controls for corporate actions | How exam teams test ‘control’ and record keeping over time |
The December 17 renewal also keeps a line clear for retail-focused businesses: unsecured cryptocurrencies held at a broker-dealer are excluded from rule 15c3-3(b).
Companies still need clear disclosure about which protections apply and which do not.
Commissioner Hester Peirce framed the staff’s FAQs as incremental, while noting how the guidance can reduce friction for market participants trying to fit in-chain activities into existing rule sets.
For compliance teams, the short-term numbers are concrete: whether the SEC FAQ index undergoes further changes.
Another important signal is whether FINRA interpretations are moving toward standardized checklists for in-chain auditors and for books and records.