What to know:
- The SEC clarified that certain crypto interfaces can operate without broker-dealer registration if they follow the rules.
- Platforms must follow strict rules on transparency, user control, and security, while avoiding activities like giving advice or handling user funds.
The SEC has issued a new statement to clarify how certain crypto-related platforms may operate under the new securities laws.
Based on the guidance released by the Division of Trading and Markets the new law focuses on how some crypto interfaces can function without registering as broker-dealers if they follow rules.
The statement explains that some certain software tools like websites, mobile apps, or wallet interfaces, help users carry out crypto transactions by turning their instructions into blockchain-ready commands. These tools are called “covered user interfaces” and are commonly used in decentralized finance and self-custody wallets.
Source: Streetfins
According to the SEC staff, these interfaces may avoid broker-dealer registration if they act only as neutral tools. This means they must not influence or control user decisions, recommend trades, or handle user funds.
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To qualify for the opportunity, platforms must allow users to fully control their transaction settings, and they must also provide educational information to help users understand what they are doing, without pushing them to make any specific investments.
The authorities also made it clear that these platforms should not promote or suggest particular trades. Instead, they should present options in a neutral and transparent way, using objective data like price or speed.
SEC Clear Boundaries for Crypto Platforms
The regulator emphasized that these interfaces must not act like traditional brokers. They cannot negotiate deals, provide investment advice, execute trades, or hold customer assets. They are also required to disclose important details, including fees, risks, conflicts of interest, and how their systems work. Transparency is a key condition for operating under this framework.
In addition, the SEC expects these platforms to have strong internal controls. This includes systems to evaluate trading venues, manage risks, and protect user data from fraud or manipulation. The statement also highlights the importance of cybersecurity. Platforms must take steps to prevent unauthorized access and safeguard user information, especially as threats in the crypto space continue to grow.
The SEC noted that this guidance is temporary and will remain in place for five years unless updated or replaced. It also invited public feedback as it continues to study how crypto markets should be regulated.
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