WASHINGTON, D.C.—Benjamin Schiffrin, Director of Securities Policy, issued the following statement regarding the withdrawal by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority, Inc. (FINRA) of their July 8, 2019 Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities:

“The SEC’s and FINRA’s decision to withdraw their joint staff statement regarding broker-dealer custody of digital assets endangers investors. That statement recognized that broker-dealers must safeguard customer securities and funds. It also recognized that this obligation applies regardless of whether a security is paper or digital. And it recognized further that there are risks associated with digital assets, that are not implicated by traditional securities, that broker-dealers needed to consider in determining whether they could custody digital assets consistent with their obligation to safeguard customer securities. The withdrawal of this statement leaves investors unprotected from these risks.

“It is troubling that the SEC and FINRA would withdraw their previous statement without addressing the risks they identified previously. For example, the joint staff statement acknowledged that the manner in which digital asset securities are issued, held, and transferred may create greater risk that a broker-dealer maintaining custody of them could be victimized by fraud or theft, could lose a ‘private key’ necessary to transfer a client’s digital asset securities, or could transfer a client’s digital asset securities to an unknown or unintended address without meaningful recourse to invalidate fraudulent transactions. These risks remain present today, despite the withdrawal of the joint staff statement.

“The SEC has once again put the interests of the crypto industry ahead of the interests of investors.”

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