A ‘token’ gift: The US SEC giveth and taketh away

[Cordillerabit]

On Dec. 23, 2020, the SEC published a statement proposing a framework for broker-dealers to custody digital asset securities in a manner consistent with Rule 15c3-3 under the Securities Exchange Act of 1934. Among other things, the statement, which will expire after a period of five years from publication, provides that a broker-dealer may custody digital asset securities so long as it operates consistent with the enumerated conditions set forth in the statement, including but not limited to, restricting its business exclusively to digital asset securities, instituting robust written policies and procedures, and ensuring that it has exclusive control over custodied digital asset securities.

Prohibition on non-digital asset securities business
It is important to emphasize that this statement only offers relief to broker-dealers that limit their activities exclusively to digital asset securities, with a focus on custody of such securities. In contrast to some misinformed industry reactions to the contrary, broker-dealers wishing to custody digital asset securities are categorically prohibited from custodying non-digital asset securities such as Bitcoin (BTC) — or for that matter engaging in any non-digital asset securities activity of any kind. Of course, while clearly not the motivating factor behind the SEC’s prohibition on non-securities digital asset business activity, a broker-dealer that is to engage in such activity would be subject to various state money transmitter licensing requirements.

The SEC’s statement also prohibits broker-dealers from engaging in any other types of traditional securities business. Therefore, in order to take advantage of the proposal announced in the statement, and in order to custody digital asset securities, currently operating broker-dealers are placed in the sadistic and bizarre position of having to shed most, if not all, of their currently existing business lines. The uninitiated might presume that existing clearing firms, with their sophisticated operational capabilities, expansive industry arrangements and robust technical competence would be well-positioned to make the first foray into custody of digital asset securities — they would, according to the SEC, be wrong.

Source: https://cointelegraph.com/news/a-token-gift-the-us-sec-giveth-and-taketh-away