Overview As firms prepare their annual ADV updates or review their compliance programs, one area […]
According to the 2018 Exam Priorities Report released in February, OCIE plans to monitor the sale of products in the cryptocurrency and initial coin offering markets and examine for regulatory compliance in instances where products are determined to be securities.
It is expected that the SEC, and likely FINRA, are aiming to treat cryptocurrencies as securities in the near future, which would mean that appropriate registration of all parties involved in managing, trading, holding, or transferring them is the key to avoiding regulatory trouble and enforcement actions. Investors of varying levels of sophistication, entering the crypto space will likely place more trust – and therefore funds- in a company that is conscious of regulatory implications and relevant securities laws.
A clear picture is emerging of what it means to be a trustworthy, legitimate business operating in this space, principally: liquidity of investments, visible efforts to protect client assets and data, and transparent and accessible communication with clients. Regulators want to see that you are putting the needs of your clients ahead of your own; investors want to know that you are not just another digital currency scam. In a developing and volatile cryptocurrency market full of unknowns, it is better to be safe than sorry.
Showing good faith with regulators by ensuring compliance with securities laws and adopting appropriate policies and procedures surrounding cryptocurrencies holds the potential to pay off in the end – with regulators and investors alike.
In Regulatory Focus: Cryptocurrency, Kaitlyn Gibbs walks through the key areas of consideration for financial institutions looking to enter or already operating in the cryptocurrency market to help facilitate compliance with regulatory guidance and avoid regulatory issues, including: determining whether a coin offering should be considered a security, The Howey Test, safeguarding client assets and data, best practice and adequate disclosure of risks.
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