FINRA Regulatory Notice Encourages Member Firms to Voluntarily Provide Information on Their Digital Asset Activities

FINRA recently issued a regulatory notice encouraging member firms to provide notification if either the firms or their associated persons or affiliates were engaging in, or planned to engage in, any activities related to digital assets such as cryptocurrencies and other virtual coins.

Citing the rapid market growth, the increasing interest from retail investors, and investor protection concerns, FINRA stated it has a keen interest in remaining abreast of the extent of member involvement in digital assets.

FINRA is requesting that each firm provide notification for activities in digital assets that include activities under Rule 3270 (Outside Business Activities of Registered Persons) or Rule 3280 (Private Securities Transactions of Associated Persons), and in digital assets that are non-securities. Additionally, FINRA is seeking information on members trading activities in derivative products tied to digital assets, such as bitcoin futures products offered by the CME and CBOE Futures Exchange.

Other types of activities of interest to FINRA include:

  • Purchases, sales or executions of transactions in a pooled fund investing in digital assets.
  • Creation of, management of, or provision of advisory services for a pooled fund related to digital assets.
  • Participation in an initial or secondary offering of digital assets (e.g., ICO, pre-ICO).
  • Creation or management of a platform for secondary trading of digital assets.
  • Mining of cryptocurrencies.
  • Recommendation, solicitation or acceptance of orders in cryptocurrencies and other virtual coins and tokens
  • Displaying indications of interest or quotations in cryptocurrencies and other virtual coins and tokens.

The notice urges members to make prompt disclosures regarding their digital asset activities, and reminds members of their obligations to submit for FINRA approval any material change in a firm’s business operations.

Until July 31, 2019, each firm is encouraged to keep its Regulatory Coordinator updated if it, or its associated persons or affiliates, begins or intends to begin engaging in a new type of activity relating to digital assets not previously disclosed.

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About the Author: Nicholas Wendland

Well versed in global regulations for both securities (equities, options and bonds) and derivatives (futures/swaps) Nicholas Wendland draws on his extensive experience at the Financial Industry Regulatory Authority (FINRA) and the New York Stock Exchange (NYSE), as well as in private practice, to distill the nuances of federal securities, futures, and commodities laws and regulations, and help financial institutions advance their business operations in a highly regulated industry.

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