FINRA Exam Targets Broker Crypto Asset Communications – Fin Tech | Rare Techy


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FINRA has announced targeted examinations of its members between July 1, 2022 and September 30, 2022, focusing on certain retail communications about “crypto-asset” products and services. including, but not limited to, so-called ‘virtual currencies,’ ‘coins,’ and ‘tokens,’ issued or exchanged using distributed ledger or blockchain technology.” The definition includes assets that are not securities under the federal securities laws. , but the Securities Act-Register Committed securities are not traded through the system of a registered clearing agency—few of them are.

FINRA requests from companies each communication related to a crypto asset, the date the communication was made public, whether the communication was filed with FINRA’s Department of Advertising Regulation, whether the communication was approved by a registered principal, and the identification of each. Crypto asset, service or transactional communication concerns. FINRA requests that firms’ WSPs review, approve, record keeping and disseminate covered communications, and any compliance policies, manuals, training materials or other written guidance regarding crypto asset communications. FINRA asked for any contracts or other agreements between the firm and any affiliate regarding the creation of covered communications and the firm’s use of customer information to determine who may receive the communications.

Not surprisingly, FINRA took this step. Regulators have no choice but to dig deeper into what has happened in the crypto market over the past weeks and months. Over the past seven years, aside from enforcement actions by the SEC and CFTC, there has been virtually no regulatory action in the crypto asset space. Given a broker’s role as a so-called “gatekeeper,” it’s no surprise that FINRA is taking action amid current market conditions.

Despite limited securities regulatory activity, FINRA has required members since July 2018 to voluntarily notify FINRA if the member engages in, or intends to engage in, any crypto activity. Since then, as we recently wrote, FINRA has clarified that it views crypto asset lines of business as material add-ons that require the filing of a continuing membership application under FINRA Rule 1017. Asset placement agent and ATS lines of business, there are about two dozen firms with pending applications (split evenly between new membership applications and continuing membership applications).

FINRA will use information and materials obtained through examination responses to better understand members’ interactions with consumers regarding crypto products. FINRA will share responses with SEC staff. Publishing the exam’s existence could serve as a warning or a deterrent (perhaps intentional, but at least inadvertently) to any broker-dealers considering operating in the crypto space.

The content of this article is intended to provide a general guide to the topic. Specialist advice should be sought regarding your particular circumstances.

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