New SEC rules lets Morgan Stanley, Goldman Sach legally “control” your private keys without the safety net you assume exists
The SEC has refreshed its crypto asset FAQs, clarifying how broker-dealers like Morgan Stanley, Goldman Sachs, and others can fulfill custody and capital necessities for crypto asset securities, and addressing how the framework applies to Bitcoin and Ethereum ETF exercise.
The replace seems on the Trading and Markets FAQ index as “Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology (May 15, 2025) – UPDATED December 17, 2025.”
It offers companies a present staff-posted reference as custody design turns into a gating merchandise for tokenized securities distribution and ETP market-making.
How the SEC’s up to date custody steerage reshapes dealer management of crypto property
In the FAQ text, employees reiterates that Rule 15c3-3(b) “possession or management” doesn’t apply to non-security crypto held by broker-dealers, protecting non-security crypto exterior the Customer Protection Rule mechanics that apply to securities custody.
For crypto asset securities, employees says a broker-dealer can set up “management” underneath Rule 15c3-3(c), even the place the instrument will not be certificated, by utilizing qualifying management places.
Staff additionally says this method reduces reliance on the special-purpose broker-dealer (SPBD) protected harbor as the main route for demonstrating management over these securities.
The employees additionally says it will not object if broker-dealers facilitating in-kind creations and redemptions deal with proprietary positions in bitcoin or ether as “readily marketable” for net capital functions.
That would apply the 20% commodity haircut underneath Rule 15c3-1 Appendix B when calculating deductions.
Those employees positions now sit alongside a proper cleanup of prior messaging.
How the SEC’s withdrawal reframes “management” in crypto asset custody
The 2019 SEC and FINRA joint employees assertion on broker-dealer custody of digital asset securities is marked withdrawn on the SEC withdrawal page, with a parallel discover posted by FINRA.
The withdrawal narrows the broker-dealer custody “north star” to the FAQ framework and its acknowledged use of current control-location ideas for crypto asset securities.
The most operationally delicate situation is what it takes, in follow, to fulfill the Rule 15c3-3(c) idea of “management” when securities are recorded on a blockchain.
The FAQ doesn’t say a broker-dealer should maintain private keys, however 15c3-3(c) management is tied to safeguarding and directing the motion of buyer securities at a acknowledged management location.
For on-chain devices, that always maps to who can signal or compel signing via the custody stack.
Examples embrace broker-dealer-held key materials in an HSM, a financial institution management location the place the broker-dealer has documented directive rights, or a multisignature association the place the broker-dealer’s signatory authority and procedures are designed to satisfy control-location expectations.
Law-firm summaries have emphasised that the employees’s method expands the path for normal broker-dealers to proof management without leaning on SPBD standing as the default posture.
That shift will increase give attention to contract language, key governance, and the audit path that demonstrates management over time, in line with Sullivan & Cromwell and Sidley Austin.
On ETP rails, the “readily marketable” posture for proprietary bitcoin and ether positions hyperlinks on to intraday stock economics for licensed individuals and market makers that assist in-kind baskets.
A capital-efficiency sketch exhibits the course: If an affiliated broker-dealer carries a median intraday stock of $50 million in BTC or ETH to facilitate creations and redemptions, a 20% commodity haircut implies a net capital deduction of about $10 million tied to that stock.
That arithmetic will not be a full net capital mannequin, nevertheless it explains why some desks desire money workflows and why employees therapy could make in-kind operations extra workable for companies working on skinny spreads.
Bank partnerships can also face fewer procedural tripwires than in prior cycles
The Federal Reserve withdrew earlier supervisory letters on April 24, 2025, that had set advance-notice expectations for sure crypto-asset and greenback token actions, transferring financial institution engagement towards extra routine supervisory channels.
For broker-dealers counting on financial institution sub-custody as a control-location pathway, that shift issues as a result of it will probably shorten the path from idea to a supervisory dialog on the financial institution aspect.
Broker-dealers nonetheless need to proof 15c3-3(c) management and data in a way examination groups can check.
Over the subsequent 12–18 months, the custody market might cluster round which buildings produce repeatable proof of management whereas containing cyber and operational publicity.
In broad phrases, the choice is usually whether or not the broker-dealer immediately controls key materials or proves directive management via a qualifying third-party management location.
Each possibility trades off governance burden, incident-response design, and examiner consolation.
| Scenario (12–18 months) | Where management sits (signing or directive authority) | Primary operational profit | Main execution danger |
|---|---|---|---|
| Broker-dealer self-custody | Broker-dealer-controlled keys (HSM or multisig) | Direct proof path for 15c3-3(c) management | Cyber controls, insurance coverage limits, auditability at scale |
| Bank sub-custody with broker-dealer directive rights | Bank as management location, broker-dealer directs actions | Familiar custody perimeter for incumbents | Contract phrases and playbooks should show management in incidents |
| Crypto custodian tech with financial institution or belief wrapper | Specialist tooling, management framed by way of agreements | Integration pace for tokenized safety workflows | Control-location qualification and supervision consistency |
| Smart-contract escrow with transfer-agent co-sign | Multisig between broker-dealer and switch agent | Programmable controls for company actions | How examination groups check “management” and recordkeeping over time |
The Dec. 17 refresh additionally retains a line clear for retail-facing companies: Non-security crypto held at a broker-dealer stays exterior Rule 15c3-3(b).
Firms nonetheless want clear disclosures on which protections apply and which don’t.
Commissioner Hester Peirce has framed the employees FAQs as incremental, whereas pointing to how the steerage can decrease friction for market individuals attempting to suit on-chain exercise into current rule units.
For compliance groups, the near-term tells are concrete: whether or not the SEC FAQ index receives additional edits.
Another key sign is whether or not FINRA interpretations evolve towards standardized examiner checklists for on-chain management proof and books and data.
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