FINRA Asks Members: What Are You Doing with Digital Assets?

Broker-Dealer Compliance + Regulation
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In a July 2018 regulatory notice (Regulatory Notice 18-20, available here: http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-18-20.pdf), FINRA has requested that members notify it if they engage, or intend to engage, in any activities related to digital assets, such as cryptocurrencies. In addition, until July 31, 2019, FINRA requests that firms notify their point of contact with FINRA, their regulatory coordinators, if they begin to engage in new activities of this type. Relevant activities include, among other things:

  • transactions in or advice regarding digital assets;
  • transactions in or advice regarding pooled assets investing in digital assets;
  • transactions in derivatives, such as futures and options, and perhaps structured products that are linked to digital assets;
  • offerings of digital assets, such as initial coin offerings;
  • accepting payment from customers in the form of cryptocurrencies; and
  • mining cryptocurrencies.

The above non-exclusive list does not include activities relating to companies that are engaged in the digital asset sector, such as participating in equity offerings of companies that are engaged in digital asset technology. Although absent from this list, broker-dealers have to be mindful of their investor suitability, due diligence, and other obligations in participating in offerings relating to new and potentially volatile industries.

It is premature to determine whether any new rules or regulations or guidance will emerge. First, FINRA needs to understand the asset class better, learn about broker-dealer activities in the area, and whether there are potential risks for investors as a result of these activities.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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