The process of integrating digital assets into the traditional financial system is entering a moment of 'standardization.' The U.S. Securities and Exchange Commission (SEC) released the latest guidance on Wednesday, clarifying how broker-dealers should comply with customer protection rules when custodizing 'crypto asset securities': even though the assets are stored on-chain, brokers must still demonstrate 'actual possession or control' of the assets, and holding the 'private key' is the core standard required by this regulation.
This guidance aims to resolve the contradictions between digital assets and existing (customer protection rules). Traditional regulations require brokers to actually control customer assets, but how to define 'possession' for tokens distributed on the blockchain has always been a legal gray area.
According to the SEC's Division of Trading and Markets on Wednesday, the guidance released is part of 'transitional measures' primarily aimed at responding to practical questions from market participants, and feedback will continue to be collected as an important reference for future formal regulatory policies.
According to the SEC's latest interpretation, broker-dealers that possess 'exclusive access' to the token's private keys, which allows them to directly access crypto assets and transfer them, can be considered to have 'actual possession or control' of crypto asset securities.
At the same time, the SEC also requires broker-dealers to establish, maintain, and strictly enforce policies that comply with industry best practices to prevent the theft, loss, or unauthorized use of private keys, and to ensure that no one else (including clients or third parties) can access the private keys and transfer assets without authorization from the broker-dealer itself.
In addition, the SEC emphasized that if brokers are aware of serious security vulnerabilities or operational flaws in the underlying distributed ledger technology (DLT), or if custodying the asset poses substantial risks to their own business, they cannot consider themselves to be in possession of that asset.
The guidance further requires brokers and custodians to plan contingency plans in advance to respond to various emergencies that may arise, including: blockchain failures, network attacks, and hard forks.
At the same time, brokers must also have the ability to freeze, destroy, or seize assets as required by law or regulatory authorities, ensuring compliance with judicial and regulatory directives.
In addition, the SEC also requires broker-dealers to continuously monitor the governance dynamics and protocol updates of the blockchain. If related changes could affect the security of customer assets, brokers must assess the risks in advance and plan 'appropriate actions' to reduce exposure.
This article is authorized for reprint from: (Block Guest)
Original Title: (U.S. SEC Releases Guidance: Brokers Must Hold Private Keys When Custodying Customer Crypto Assets)
Original Author: Block Girl MEL
'Clearly Defining Possession Rights! U.S. SEC: Brokers Must Hold Private Keys When Custodying Customer Crypto Assets' was first published in 'Crypto City'
