FINRA's 2024 Report Incorporates Crypto Assets for the First Time, Guidance Offered to Firms
Summary:
The Financial Industry Regulatory Authority (FINRA) has published its 2024 Annual Regulatory Oversight Report, which includes a section discussing crypto assets for the first time. FINRA encourages firms participating in crypto-related activities to comply with SEC guidelines. The report outlines considerations for SEC compliance, such as cybersecurity and anti-money laundering parameters. It also mentions that the non-compliance rate for crypto asset-related retail communications is significantly higher than for other products. Additionally, FINRA may face implications from a future Supreme Court ruling on the SEC's use of in-house judges.
The U.S. self-regulatory body, the Financial Industry Regulatory Authority (FINRA), disclosed its 2024 Annual Regulatory Oversight Report that, notably, included a discourse on cryptocurrencies for the first instance. The body, responsible for supervising securities broker-dealers with mandatory membership, operates under the jurisdiction of the Securities and Exchange Commission (SEC). The elaborative report is designed to aid member enterprises in shaping and managing their compliance programs. Notably, Crypto Asset Developments and Advertised Volume were fresh additions among the 26 diverse subjects discussed in the write-up.
The discourse on cryptocurrencies was chiefly addressed to organizations already involved with crypto-related operations or those planning to venture in. FINRA’s member enrolment procedure sanctions companies to act as an agent in private (unpublic) placements, manage a substitute trading platform for cryptocurrency asset securities, and offer custody services. It projected: "FINRA’s Membership Application Program (MAP) mirrors the SEC’s counsel in evaluating a company’s proposed crypto asset securities business operation, conforming to pertinent regulations like the SEC’s financial responsibility and customer protection criteria.”
FINRA also urged its members to keep it informed about their dealings with non-security crypto assets, in addition to crypto-related outside business operations, private securities contracts, and crypto mining ventures executed by associated persons. The write-up recommended a comprehensive series of factors for SEC compliance, like identifying if a cryptocurrency asset is a security, if it's the subject of a registration statement or considering cybersecurity and anti-money laundering aspects. Retail interactions were emphasized due to: “The observed non-compliance rate in crypto asset-related retail communications reviewed by FINRA’s Advertising Regulation Department is notably higher than other products.”
There also exists separate checklists for "surveillance themes" and due diligence. An impending Supreme Court verdict on the SEC’s use of in-house judges may affect FINRA, who also employs in-house judges to resolve cases involving members. This routine was also questioned in 2023, and the Court of Appeals for the District of Columbia Circuit ruled against FINRA in the challenge in July of 2023.
Published At
1/10/2024 12:35:00 AM
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