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Regulation

SEC and FINRA Withdraw Broker-Dealer Digital Asset Custody Statement

This action streamlines broker-dealer engagement with digital asset securities, mitigating prior regulatory impediments and fostering operational clarity.
September 19, 20253 min

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Briefing

The U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority, Inc. (FINRA) have jointly withdrawn a 2019 statement that previously restricted broker-dealers from custodying digital asset securities, alongside issuing new interpretive FAQs. This pivotal move signals a strategic shift towards greater regulatory accommodation for digital assets, directly impacting the operational latitude of broker-dealers by removing a significant compliance hurdle established on July 8, 2019.

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Context

Prior to this action, the digital asset industry operated under a prevailing framework marked by legal ambiguity, particularly concerning the custody of digital asset securities by regulated broker-dealers. The 2019 Joint Statement from the SEC and FINRA had effectively constrained broker-dealers, creating a compliance challenge that limited their ability to integrate digital assets into traditional financial services. This restriction contributed to an environment where the operationalization of digital asset custody within established financial entities faced significant uncertainty.

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Analysis

The withdrawal of the 2019 Joint Statement fundamentally alters the compliance frameworks for broker-dealers seeking to engage with digital asset securities. This action removes a prior regulatory disincentive, enabling these entities to develop and offer custody services for digital assets with greater confidence. The issuance of accompanying Crypto FAQs provides essential interpretive guidance on applying existing rules, such as the Customer Protection Rule and recordkeeping requirements, to digital asset activities.

This clarity facilitates the integration of digital asset operations into a firm’s existing compliance architecture, fostering a more robust and regulated market infrastructure. The shift is expected to enhance market efficiency and potentially expand institutional participation in the digital asset ecosystem.

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Parameters

  • Regulatory Bodies ∞ U.S. Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority, Inc. (FINRA)
  • Action Type ∞ Withdrawal of Joint Statement, Issuance of FAQs
  • Previous Guidance Withdrawn ∞ 2019 Joint Statement on Broker-Dealer Custody of Digital Asset Securities
  • Effective Date of Withdrawal ∞ May 15, 2025
  • Affected Entities ∞ Broker-dealers, transfer agents
  • Key Areas of FAQs ∞ Customer Protection Rule, custody, SIPA, recordkeeping, transfer agent registration

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Outlook

This regulatory adjustment marks a significant step in aligning U.S. digital asset policy with a more innovation-friendly stance, potentially setting a precedent for further harmonization across jurisdictions. The increased clarity for broker-dealers is poised to catalyze broader institutional adoption and the development of sophisticated digital asset products. Future developments will likely focus on how these FAQs are interpreted and applied in practice, with potential for further rulemaking or additional guidance as market practices evolve. This action underscores a commitment to integrating digital assets within the existing financial regulatory framework, rather than imposing entirely new paradigms.

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Verdict

This withdrawal and subsequent guidance decisively de-risks digital asset custody for regulated broker-dealers, establishing a clearer operational pathway for institutional engagement and advancing the industry’s integration into mainstream finance.

Signal Acquired from ∞ lw.com

Glossary

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customer protection

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market infrastructure

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financial industry regulatory

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joint statement

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digital assets

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regulated broker-dealers

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