SEC Identifies Crypto Broker-Dealers as Key Examination Focus for 2024
Summary:
The U.S. Securities and Exchange Commission (SEC) announced its examination focus for 2024, pointing to crypto broker-dealers among key areas of study. The Division of Examinations is set to scrutinize innovations like automated investment tools, AI, and trading platforms, with a focus on registrants' understanding of the products they offer and their compliance to latest guidelines. Evolving technologies like blockchain and distributed ledger technology will also be assessed in managing associated risks. Transfer agents using emerging technologies will be considered separately. Director Richard Best emphasized the importance of this move for enhancing transparency and encouraging a heightened focus on compliance in potentially risky areas.
On October 16, the U.S. Securities and Exchange Commission (SEC) unveiled their examination focal points for 2024. The Division of Examinations of the agency has been issuing these reports for over ten years in order to notify their registrants about the rising risks they are monitoring, including crypto broker-dealers. The 2023 report reveals that the examinations division has bolstered its capability and established teams within its assorted programs, to cater to cryptocurrencies, Fintech, AI, and cybersecurity. The SEC is persistently scrutinizing broker-dealers and advisors involved in crypto, and examining registrants who propose innovative approaches that can accommodate online compliance and marketing demands, including robotic investment utilities, artificial intelligence, and trading algorithms or platforms.
Inspections will consider the compliance of registrants with customer advice behavioral standards and their comprehension of the products they offer, especially relating to mature investors and retirement assets. They will also ensure adhesion to the updated guidelines, with particular attention to the "custody requirements under the Advisors Act." The management of risks involved in using blockchain and distributed ledger technology will also be evaluated.
The review will separately consider transfer agents working with crypto asset securities issuers or incorporating emerging technologies in their operations. The agency is making early preparations for T+1 examinations, slated for broker priority in 2024, which indicates their intention to rigorously vet all associated entities ahead of May next year.
Although the Division of Examinations has released reports in the past, this marks the first time it has been issued at the dawn of a new fiscal year. Division Director Richard Best said making their examination priorities publicly accessible enhances transparency and motivates firms to direct their compliance and surveillance initiatives towards potentially high-risk areas for retail investors. The SEC stated that examination priorities are established based on input from examination staff, investors, industry groups, and other sources from the previous year.
Published At
10/16/2023 5:57:55 PM
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