Non-Custodial Wallet Providers and Broker-Dealer Regulation

Summary

SIFMA provided additional input to the U.S Securities and Exchange Commission (SEC) and the members of the Crypto Task Force, expanding upon the letter filed January 15th, 2026. In that letter, SIFMA emphasized the importance of developing durable approaches for determining when wallet providers are effectively carrying out regulated functions, such as that of a broker-dealer, so that innovation in securities markets can proceed while also maintaining core investor and market protections.

Excerpt

The Securities Industry and Financial Markets Association (“SIFMA”) ¹ appreciates the opportunity to provide additional input to the Securities and Exchange Commission (the “Commission”) and the members of the Crypto Task Force expanding upon our letter filed January 15th, 2026. In that letter, we emphasized the importance of developing durable approaches for determining when wallet providers are effectively carrying out regulated functions, such as that of a broker-dealer, so that innovation in securities markets can proceed while also maintaining core investor and market protections.

As we stated previously, providers of software that store and transfer digital assets (“wallet providers”) should be subject to regulation based on the functions they perform; that is, do its activities functionally substitute for roles required to be performed by regulated entities within the securities markets, or is the wallet provider simply providing a technology solution to help individual investors perform those functions? This is consistent with the long-standing approach taken by the Commission and the courts, which is focused on evaluating market participants based on the substance of their activities, as well as the investor protection and market integrity risks and responsibilities those activities entail.

As market participants look to apply the experiences and business models of wallet providers in the largely unregulated crypto markets to emerging tokenized securities markets, it is crucial to address the significant functional similarities between traditional broker-dealer services and some – though not all- wallet applications proposed for the trading of U.S. tokenized stocks. ² The application and preservation of the Exchange Act of 1934’s protections remain critical when examining the activities of broker-dealers and we urge the Commission to reject broad requests by entities in broker-like functions from these core investor protection and market integrity frameworks. In this letter, we expand on our prior recommendations for determining when wallet providers may be functioning as brokers and stress the importance of approaching this analysis through a holistic process that is informed by securities regulation, case law, and SEC guidance on these questions.

We recognize that many of the above functions, when undertaken by wallet providers in connection with activities not involving securities, fall clearly outside the scope of the Commission’s jurisdiction, and SIFMA is not suggesting that wallet providers that engage solely in non-securities activities or provide software services in furtherance of securities activities carried out by regulated entities should be subject to securities law registration requirements. However, the analysis is different when applied to wallet providers directly engaging in regulated securities activities, and wallet provider business models built around monetizing user activity in largely unregulated, non-securities crypto asset markets should not automatically carry over to activities that involve securities.

Developing a durable approach that is built on the existing robust U.S. securities regulatory framework will provide a powerful impetus for the growth and development of digital wallets, which we see as an innovation that will support continued innovation in tokenization of securities. Given the increasingly important role that wallet providers will play in these markets, it is essential that the Commission act to clearly delineate between wallet providers that simply provide “disinterested technology solutions” and those that also engage in activities that are appropriately subject to investor protection and market integrity regulations. Clear answers to these questions will enable the development of new technology and operating models that bring together technology providers and regulated entities and will help drive the growth of tokenized securities markets. Regulatory clarity will also provide a pathway for new market entrants to define and develop their role in the markets while avoiding regulatory arbitrage.