Davis Polk Client Memorandum: SEC and FINRA Staffs Highlight Broker-Dealer Regulatory Challenges Raised by Digital Assets—And Hint at Solutions


Broker-dealer custody of on-blockchain assets has been a key hurdle in the development of a more regulated financial infrastructure for digital assets in the United States.  In a joint statement (the Joint Statement), the staffs of the SEC and FINRA outlined their concerns about broker-dealers’ ability to comply with their financial responsibility rules—in particular, the requirement to obtain and maintain physical possession or control of fully-paid and excess margin securities—for business activities involving digital assets that are securities.  The Joint Statement hints at a possible path forward for broker-dealers who pursue a business model that does not result in a broker-dealer having custody of customer digital assets.

Our client memorandum provides further background on the Joint Statement and the issues involved.

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