FINRA Is Conducting a Targeted Exam of “Crypto Assets”

Riding the coattails of recent news, FINRA announced on November 14th that it is conducting a targeted exam of firm practices regarding retail communications concerning “Crypto Asset” products and services.

For the purposes of this exam, FINRA defines “Crypto Asset” as an “asset that is issued or transferred using distributed ledger or blockchain technology, including, but not limited to, so-called ‘virtual currencies,’ ‘coins,’ and ‘tokens.’” FINRA expressly states that a Crypto Asset “may or may not meet the definition of a ‘security’ under the federal securities laws,” although it does exclude securities registered under the Securities Act and transferred through the system of a registered clearing agency.

The exam has a broad range of requests for the period between July 1 through September 30, 2022. The requests include:

  • All retail communications (including social media) that refer or relate to a Crypto Asset;
  • The firm’s written supervisory procedures concerning the review, approval, record keeping, and dissemination of the communications;
  • Any compliance policies, manuals, training materials, compliance bulletins, and/or any other written guidance concerning the communications; and
  • Any contracts between the firm and any affiliate concerning (i) the creation or dissemination of the communications and (ii) the affiliate’s use of information concerning the firm’s customers to determine who would receive the communications.

Additionally, for each such identified communication, FINRA is requesting:

  • The date the communication was made public;
  • Whether or not the communication was filed with FINRA’s Advertising Regulation Department;
  • Whether or not the communication was approved by a registered principal of the firm and when such approval was made; and
  • The identity of each Crypto Asset and/or service to which the communication refers.

While the relevant period is just three months, the requests are broad and could potentially result in the review and production of significant amounts of information. As crypto continues to receive news coverage, we expect FINRA and other regulators to increase their focus on them.

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About the Author: Jamie L. Helman

Jamie L. Helman concentrates her practice on securities, broker-dealer arbitration, litigation, mediation, employment matters, and regulatory defense. She has experience first-chairing FINRA arbitrations, defended on-the-record testimony of broker-dealer employees before FINRA, and is presently involved in the representation of broker-dealers in several pending FINRA cases as well as regulatory matters.

About the Author: Andrew Van Houter

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