Subject: FINRA Enforcement

Crypto is Here to Stay in 2024, So Be Careful How You Talk About It

More than ever before, financial services regulators must increasingly adapt to technological advances. Perhaps no other technological advancement is more important right now than crypto currency. Crypto currency is defined as digital assets issued or transferred using blockchain technology. Earlier this month, the SEC, despite SEC chairman Gary Gensler’s well-known skepticism of crypto, granted Bitcoin, the world’s largest crypto currency, approval to be the first crypto asset listed as an exchange traded fund (ETF). This defining moment for crypto currency further cements the relatively new technology into the financial services and securities landscape.

Anticipating the changing tides, FINRA recently declared in its 2024 Annual Regulatory Oversight Report that it would add a brand-new Crypto Asset Development section – dedicated to providing guidance for member firms engaging in (or expecting to engage in) the crypto economy. This new section includes reports from FINRA’s November 2022 targeted exam reviewing the practices of certain member firms that communicate with retail customers concerning crypto assets and crypto asset-related services. The relevant time period of the exam was from July 1 through September 30, 2022. On January 24, 2024, FINRA published an update to the targeted exam, claiming that approximately 70 percent of the more than 500 retail customer communications it reviewed contained potential FINRA Rule 2210 violations (communication with the public), including the following:

Continue reading “Crypto is Here to Stay in 2024, So Be Careful How You Talk About It”

SIFMA C&L March 2023 Annual Conference – A Focus on Crypto

The 2023 Securities Industry and Financial Markets Association’s (SIFMA) Compliance & Legal Annual Seminar, as usual, was well attended by compliance and legal professionals, including FINRA executives and SEC directors. The three-day event held, where outside San Diego skies were overcast and grey, also coincided with the run on SVB, and gloomy forecasts for Signature Bank and First Republic. Inside, industry leaders, and regulators discussed legal trends on the horizon. Not surprisingly there was a focus on crypto at this year’s conference. While Reg BI, ESG, off-channel communications, cybersecurity and the foreboding banking issues (among others) were also hot topics being discussed by industry insiders, here we focus on crypto. Below are some key takeaways.

Expect More SEC Enforcement Actions with a Focus on Crypto

SEC Director Gurbir Grewal noted the Commission’s general intent to focus on enforcement actions and swiftly bringing those actions to resolution as a way to rebuild public trust in the markets, financial institutions and the Agencies. He also urged firms to self-report and stressed the need for robust compliance programs, especially as new rules and regulations continue to be issued. He took time to speak about crypto investments and noted that traditional firms generally “do not and cannot” participate in this space due to the lack of compliance and clear rules around these investments. He also noted that the SEC is doubling the size of its Crypto Assets and Cyber Unit in order to focus on crypto’s harm to investors; indeed the SEC has already brought more than 100 enforcement actions related to crypto. A fact which is reflected on the “SEC Crypto Assets and Cyber Enforcement Actions” website.

Continue reading “SIFMA C&L March 2023 Annual Conference – A Focus on Crypto”