The United States Securities and Exchange Commission (SEC) on Dec. 17 issued a statement noting its position on the applicability of Rule 15c3-3 regarding broker-dealers that hold crypto asset securities, including such things as debt securities, or tokenized equity, on behalf of customers.

The statement provides that the SEC’s staff of the Division of Trading and Markets will not object to a broker-dealer deeming itself to have “physical possession” of a crypto asset security in the circumstances described by the SEC in the new statement. Some relevant circumstances noted by the SEC include that the broker-dealer maintain policies and procedures that are reasonably designed and consistent with best practices to protect private keys.

According to the SEC’s statement “[t]his circumstance emphasizes that a broker-dealer has policies, procedures, and controls reasonably designed to help ensure that no other person, including the broker-dealer’s customer or a third-party (including the broker-dealer’s affiliate), has access to the relevant private keys and the ability to transfer the asset without the authorization of the broker-dealer.”

This is logical being that broker-dealers, as fiduciaries, need to take steps reasonably designated to protect the property that they are holding for the benefit of their clients. The SEC has made it clear that if you hold crypto assets you are especially on notice that you must take necessary steps to protect the assets, including the keys, which are essentially the magic words used to access the crypto.

While this is indeed an interim step, as said by Bob Dylan, “you don’t need a weatherman to know which way the wind blows” and broker-dealers must make sure they are protecting the keys and the crypto.