Digital asset custody is one of the thorniest regulatory challenges in U.S. financial law. Investment advisers and broker-dealers must follow strict custody and client-asset protection rules – but these rules were built around physical certificates, banks, and transfer agents, not cryptographic keys and distributed ledgers.

Blockchain stores assets through wallets and private keys, and that complicates traditional definitions of possession, control, and “good control locations.” Agencies like the SEC, OCC, and NYDFS have issued guidance, and the OCC has confirmed that national banks may custody digital assets. Still, many open questions remain, especially for broker-dealers under the Customer Protection Rule. For now, the safest path for many firms is non-custodial models that avoid directly holding clients’ digital assets. True regulatory clarity is still developing – and will shape how digital asset markets mature.

To read the full chapter from GLI – Blockchain & Cryptocurrency Regulation 2021, please click here.