SEC Releases Crypto FAQs: What They Mean for Custody, Tokenized Securities & Broker-dealers

Key Takeaways

• The SEC clarified that crypto must follow existing custody and disclosure rules.
• Broker-dealers must treat tokenized securities like traditional ones.
• Bitcoin and Ether may qualify as readily marketable under capital rules.
• Clear compliance standards are now in place to guide crypto firms responsibly.

Despite crypto regulation often developing slower than the technology, institutions often aim to create clear rules that support responsible growth and protect the market.

On May 15, 2025, the Securities and Exchange Commission’s (SEC) Division of Trading and Markets published a new FAQ document explaining how existing rules apply to crypto assets, broker-dealers, and distributed ledger technology.

While it refers to earlier guidance, such as the Special Purpose Broker-Dealer (SPBD) statement, the update offers fresh staff interpretations without changing laws or regulations.

This article explores those guidelines and explains their implications for digital asset custody, tokenized securities, and broker-dealer compliance.

Key Moments Shaping SEC Guidance

To provide some background, the SEC has shaped its crypto stance through key reports and statements, amongst which some of the main ones are:

1.2017 DAO Report: SEC’s first move, declaring DAO tokens as securities.

2. 2019 FinHub Framework: SEC’s guide to applying the Howey Test to crypto.

The SEC’s FinHub released the framework in 2019 to explain how it applies the Howey Test to digital assets. It did not introduce new rules but clarified how the four parts of the test apply in the crypto space:

• Investment of money
• In a common enterprise
• With a reasonable expectation of profit
• Derived from the efforts of others

The framework highlighted factors related to decentralization, such as whether profits depend on a central team’s efforts, how much control that team exercises, how decentralized the network is, and whether token holders rely on others to increase the asset’s value.

This guidance helped shape future SEC enforcement and remains a key reference in evaluating whether a crypto asset is a security.

3. April 10, 2025 Disclosure Rates: The statement focused on how firms should handle registration, prospectus delivery, and ongoing disclosures when offering or selling digital asset securities. It reminded issuers that the method of offering, whether through a blockchain, smart contract, or tokenized structure, does not alter their underlying legal obligations.

With this in mind, the new FAQ document offers insights that shape how custody, tokenized securities, and broker-dealer compliance are handled. The following section breaks down these areas in more detail.

Custody Clarified: What Broker-Dealers Need To Know

Broker-dealers must follow custody rules when they handle crypto assets that qualify as securities. These assets usually include investment contracts, stocks, bonds, and transferable shares.

The Howey Test helps define which assets count as securities. Bitcoin, Ether, and most stablecoins do not qualify as securities by themselves. Rule 15c3-3 applies to tokenized securities in digital form. It does not apply to these cryptocurrencies unless they are part of an investment contract.

Even when the crypto asset is not a security, broker-dealers must protect it. They must keep clear records, safeguard the assets, and store them in approved locations.

The SEC reminded firms about its 2020 SPBD framework. This framework is optional. However, firms that follow it may lower their risk of enforcement when they handle digital asset securities.

Each token needs a case-by-case review. If the token is a security, custody rules apply. If not, the firm still must protect customer assets and maintain proper records.

Tokenized Securities: Where Regulation Stands Now

Tokenized securities follow the same legal rules as traditional securities. Issuing them through blockchain or smart contracts does not remove any responsibilities with the SEC. 

Firms that offer or sell these digital assets must meet the same standards as those handling electronic or paper-based securities.

The SEC’s latest FAQ confirms that tokenized securities must follow registration, disclosures, and custody rules, including the Securities Act of 1933 and the Securities Exchange Act of 1934. The token format does not change the need to file correct disclosures or protect investors.

Firms that handle tokenized securities must also meet rules on clearing, settlement, and recordkeeping. If they use a distributed ledger, it must offer the same transparency, accuracy, and traceability as traditional systems

The SEC also explains that putting a security into a digital wrapper does not change what the asset is. A digital wrapper is just a way to represent the asset using blockchain. It does not affect the legal status of the asset. What matters is the nature of the asset, not how it is delivered. 

The goal is always to protect investors, whether the asset is digital or not.

Do Tokenized Securities Qualify for SIPC Protection?

Yes, but only under specific conditions. The Securities Investor Protection Corporation (SIPC) is a nonprofit organization created by Congress in 1970 to protect customers if a broker-dealer fails. 

It helps recover missing securities or cash but protects certain registered assets, not all crypto. In the case of tokenized securities, SPIC coverage could apply.

The tokenized security must be legally registered with the SEC, meet the definition of a security under federal law, and be held by a broker that belongs to SIPC. If any of these are missing, SIPC protection does not apply.

Broker-Dealer Compliance: Updates and Obligations

The main message of the SEC FAQs release is that digital assets do not change the law. Broker-dealers must apply all existing compliance tools to the crypto space and treat digital assets with the same level of care as traditional securities. Therefore, the main updates and obligations are:

• Separate asset types clearly: Broker-dealers must distinguish between securities and non-securities in all operations to apply the correct regulatory standards.
• Keep full records: Firms must document non-security crypto asset activity as thoroughly as they do for securities to support customer asset protection during insolvency.
• Apply capital rules properly: Bitcoin and Ether may qualify as readily marketable under Rule 15c3-1. Broker-dealers must apply the 20% haircut under Appendix B when calculating net capital.
• Strengthen internal controls: Firms must use reliable systems to track and manage digital asset holdings, especially when using blockchains.
• Match technology standards: Any system used to custody, settle, or record crypto assets must provide the same transparency, accuracy, and auditability as traditional financial systems.

SEC Clarifies Staking Services Are Not Securities Offerings

It is important to note that regulations keep evolving, and as of the time of writing, the SEC has announced that most staking services are not securities offerings. 

This shift reverses the Gensler-led approach targeting firms like Coinbase and Kraken. Commissioner Hester Peirce referred to the new guidance as a clear path forward. 

“Are crypto assets securities?” she asked rhetorically , adding that most “currently existing crypto assets in the market are not.” 

Ethereum and Solana could benefit the most from staking ETFs already living in Europe. 

The update may boost future ETF approvals, but more than 70 crypto proposals are still waiting.

Conclusion

The SEC’s May 2025 FAQs explain that fast-moving technology does not change the law. Broker-dealers must follow existing rules for custody, disclosures, and recordkeeping. Tokenized securities carry the same duties as traditional ones. 

Firms must separate asset types, apply capital rules correctly, and use reliable systems to protect customer holdings. Digital format or not, the responsibility to safeguard assets stays the same. 

This update marks a step forward. Specific rules bring clarity and set firmer ground for the crypto ecosystem to grow confidently.

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