SEC issues new guidance on DeFi tools, signals when broker-dealer rules do not apply

• The US SEC has outlined conditions under which DeFi interface providers can operate without registering as broker-dealers.
• The interfaces must not exercise any control or discretion over user transactions and must remain purely neutral tools.
• The guidance requires transparent fixed fees, prominent disclaimers and robust conflict policies to keep interfaces as neutral self-custodial tools.

The US Securities and Exchange Commission's (SEC) Division of Trading and Markets released a staff statement on Monday outlining when certain decentralized finance (DeFi) tools may operate without registering as broker-dealers.

The guidance focuses on developers and operators of user interfaces that help investors create self-custodial transactions involving "crypto asset securities." It provides a framework for when these tools can function as neutral technology providers rather than regulated intermediaries.

The statement defines "Covered User Interface Providers" as entities that build or manage platforms such as websites, mobile apps, browser extensions, and wallet-integrated tools. 

These interfaces allow users to enter transaction details, such as asset type, price, and amount, and convert them into blockchain instructions while also displaying market data, such as pricing and transaction costs.

SEC outlines rules for non-custodial platforms

The guidance sets clear expectations, stating that users must be able to fully adjust default transaction settings and have access to educational tools to support informed decisions.

Platforms are also not allowed to promote specific trades or exercise control over how transactions are executed. Any default routing or liquidity options must be selected based on objective criteria, with full disclosure of any affiliations.

The statement further notes that interfaces must rely on neutral sorting methods, such as price or speed, when presenting transaction options. Compensation models are also restricted to transparent, fixed fees that do not vary by transaction type or trading route.

Providers are expected to maintain strong internal policies to review the security, liquidity and transparency of connected platforms, while also addressing potential conflicts of interest.

The guidance also requires ongoing disclosures about fees, risks, system design and cybersecurity practices. Platforms must clearly inform users that they are not registered as broker-dealers.

Additionally, the guidance applies only to self-directed, non-custodial transactions. It does not cover services that involve holding user funds, offering investment advice or managing trades on behalf of users.

The SEC described the statement as an interim measure while broader regulatory questions around crypto continue to be reviewed.