How Is the SEC Guiding Brokers on Crypto Custody and Monitoring ATS Activity?

The U.S. Securities and Exchange Commission (SEC) has issued updated guidance to help brokers comply with crypto custody rules and announced heightened monitoring of Alternative Trading Systems (ATS) involved in crypto trading. These steps reflect a regulatory effort to improve investor protection and market transparency amid growing concerns about custody risks and opaque trading practices in the cryptocurrency ecosystem.

What happened

In December 2025, the SEC released updated guidance aimed at clarifying how brokers should safeguard digital assets held in custody. This guidance includes explicit compliance expectations such as segregation of client assets, conducting regular audits, and submitting enhanced reporting to regulators. The SEC’s objective is to ensure brokers implement controls that prevent loss or misuse of client crypto holdings, aligning custody practices more closely with traditional financial industry standards.

Simultaneously, the SEC announced it is increasing its monitoring and enforcement focus on crypto ATSs—platforms facilitating crypto trading outside of traditional exchanges. The agency is intensifying scrutiny of trade reporting, order handling, and potential market manipulation risks within these venues. This reflects an effort to bring crypto trading platforms under a regulatory lens similar to that applied to equity markets.

These developments come amid broader regulatory priorities to enhance investor protections and transparency as the crypto market matures. According to official disclosures and multiple media reports, the SEC’s updated guidance and monitoring measures respond to rising concerns about custody vulnerabilities and the opaque nature of some crypto trading activities.

Interpretations from industry sources suggest the SEC is signaling a shift toward applying established financial safeguards to the crypto sector, with an emphasis on reducing operational risks and improving market integrity. Increased compliance requirements for brokers and ATS operators are expected to raise operational costs but potentially bolster investor confidence. However, some analysts note this regulatory tightening could also slow innovation or encourage certain trading activity to move offshore if compliance burdens become prohibitive.

Why this matters

The SEC’s updated guidance and enhanced oversight of ATSs mark a significant step in the evolution of crypto market regulation. By clarifying custody obligations, the SEC aims to address a critical vulnerability in crypto markets where client assets have historically faced risks from inadequate safeguards or mismanagement. Segregation of assets and regular audits are foundational controls in traditional finance, and their adoption in crypto custody could reduce instances of loss or fraud.

The intensified focus on ATS activity signals the SEC’s intent to improve transparency and reduce market manipulation risks in crypto trading venues. ATSs have grown rapidly as alternatives to centralized exchanges, but their regulatory status and operational practices have often been less clear. Bringing these platforms under more rigorous review aligns crypto trading closer to established equity market standards, potentially increasing investor trust.

These regulatory actions reflect a broader maturation of the crypto ecosystem, where market innovations are increasingly subject to conventional oversight frameworks. This alignment may help integrate crypto more fully into mainstream financial markets by reducing systemic risks and improving market integrity. However, the increased compliance burden could affect smaller brokers and ATS operators disproportionately, potentially reshaping the competitive landscape and innovation trajectory within the sector.

What remains unclear

Despite the confirmed issuance of updated guidance and increased monitoring, several important details remain unspecified in available reporting. The precise enforcement mechanisms the SEC will use to apply the new custody rules across different broker types, especially smaller or non-traditional crypto custodians, are not detailed. It is unclear how frequently the SEC will audit or review ATS compliance or the specific criteria used in these evaluations.

Additionally, the interaction between the SEC’s guidance and frameworks administered by other regulators such as the Commodity Futures Trading Commission (CFTC) or the Financial Industry Regulatory Authority (FINRA) has not been clarified. There is also no information on whether there will be phased compliance periods or immediate penalties for brokers or ATSs failing to meet the updated requirements.

Market participant reactions, including broker and ATS operator adjustments to the new rules, have not yet been reported. The long-term effects of these regulatory changes on market structure, liquidity, innovation, and retail investor access to crypto products remain speculative and unquantified at this stage.

What to watch next

SEC announcements or disclosures detailing enforcement policies and compliance timelines for brokers and ATSs under the updated custody guidance.
Reports from the SEC on audit frequency and criteria applied to ATSs, including any findings related to trade reporting or market manipulation.
Clarification on how the SEC’s crypto custody rules and ATS oversight will coordinate with other regulatory bodies such as the CFTC and FINRA.
Industry responses from brokers and ATS operators regarding operational changes, compliance costs, and impacts on business models.
Data or analysis on the impact of these regulatory measures on retail investor access to crypto products and overall market liquidity.

The SEC’s updated guidance on crypto custody and enhanced ATS monitoring represent important regulatory steps toward greater investor protection and market transparency. However, significant questions remain about enforcement details, regulatory coordination, and the broader market impact. As the crypto ecosystem continues to evolve, observing how these policies are implemented and their effects on market participants will be critical to understanding the future trajectory of crypto regulation and market structure.

Source: https://www.coindesk.com/policy/2025/12/18/u-s-sec-aids-brokers-on-crypto-custody-looks-more-closely-at-ats-activity. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.