In a joint statement, staffs of the SEC’s Division of Trading and Markets and FINRA’s Office of General Counsel, raised significant regulatory concerns for broker-dealer firms deemed to have custody of digital assets. The joint statement questions how a broker-dealer could comply with the customer protection rule (15c3-3), especially the obligation to safeguard customer assets. The regulators, noting that $1.7 Billion worth of digital assets were stolen in 2018, express concern about how to adequately guard against fraud and theft. They also ask how to reverse transactions made in error and how to properly control digital assets. The SEC and FINRA staffs are also concerned about SIPA protection for the firm and its clients. The next step is continued dialog with the industry: “The Staffs encourage and support innovation and look forward to continuing our dialogue as market participants work toward developing methodologies for establishing possession or control over customers’ digital asset securities.”
Now, what? Will the SEC, in conjunction with the industry, offer some solutions to these difficult questions? Or, will the regulator continue to push the crypto-industry to the Wild West corners of the securities markets including offshore jurisdictions and private networks?