Broker-dealers who are looking for guidance from the US Securities and Exchange Commission regarding the possession and control of client cryptocurrency assets should prepare to wait a little longer.

Cryptocurrency’s raison d’ être is to disintermediate anyone who sits between a transaction’s counterparties, noted Thomas McGowan, associate director, Division of Trading and Markets at the SEC, during the Saturday session of the SEC Speaks conference hosted by the Practicing Law Institute.

One reason that cryptocurrencies trade is that they do not need intermediaries to verify that you have the asset, he said. “It is safe to trade with me because I have the cryptocurrency and you have the product I want to buy. They can demonstrate that they possess the position.”

It is not like the old days where a broker-dealer could keep a stock certificate in its vault or stored with the Depository Trust Company, said McGowan. “With blockchain technology, it does not use the same approach. You cannot look to a third-party or into a vault to look for it.”

Making a personal comment and not speaking for the Commission, he added that the Commission had a long history of providing principles-based guidance rather than prescriptive guidance and recommended that firms work to develop their internal practices.

“What I like to do is look at firms that have strong practices and use those,” said McGowan. “That is a good approach. It seems common among well-run firms. Set that as a standard for the industry, but make sure everyone has an appropriately high set of records and practices.”

McGowan wants to know how firms verify the positions in their books to their auditors.

“I’m looking for the industry to come to us and say how they run their business,” he said. “How they make sure they own these positions and how do they move them around. Moreover, use that as a basis on how we would think about it an how it would meet our rules.”

However, things are so new that firms have not developed the processes and brought them before the SEC, he added.