The U.S. Securities and Exchange Commission will allow crypto-focused broker-dealers to operate for five years without the fear of enforcement, if they can verify they hold and control customers’ digital asset securities.
According to an announcement published on 23 December, broker-dealers will need to limit their business to digital asset securities only, establish and implement policies to mitigate risk and provide customers with disclosures regarding the risk in engaging in cryptocurrencies.
Last year, the SEC and the Financial Industry Regulatory Authority — agency tasked with approving broker-dealer applications — raised questions about digital asset custodians’ ability to comply with customer protection rules in the U.S.
The two government agencies debated whether companies that hold their customers’ crypto assets complied with the Customer Protection Rule, a part of the Securities Exchange Act of 1934 that requires broker-dealers to obtain and maintain physical possession or control of all fully-paid and excess margin securities of its customers.
The SEC said the five-year period would allow it to understand how to regulate the crypto space. The Commission also provided the public with a 60-day period to comment on specific questions regarding the industry. These include the best practices to protect against theft, holding private keys, and resolving 51% attacks.