On Friday July 6, 2018 FINRA published Regulatory Notice 18-20 with respect to its efforts to ascertain the extent in which its members or its associated persons, or affiliates currently engages or intends to engage, in any activities related to digital assets such as cryptocurrencies, virtual coins and tokens. In Regulatory Notice 18-20, FINRA is encouraging each member firm to keep its Regulatory Coordinator informed if it, or its associated persons or affiliates, currently engages, or plans to engage, in any activities related to digital assets not previously disclosed. Prior to this announcement calls were made by FINRA’s Regulatory Coordinator’s to survey member firms compliance staff regarding involvement in related digital assets. Likewise, the Risk Control Assessment (RCA) Survey contained questions addressing digital assets.
The types of activities of interest to FINRA if undertaken (or planned) by a member, its associated persons or affiliates, include, but are not limited to:
- purchases, sales or executions of transactions in digital assets;
- 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;
- purchases, sales or executions of transactions in derivatives (e.g., futures, options) tied 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 the secondary trading of digital assets;
- custody or similar arrangement of digital assets;
- acceptance of cryptocurrencies (e.g., bitcoin) from customers;
- mining of cryptocurrencies;
- recommend, solicit or accept orders in cryptocurrencies and other virtual coins and tokens;
- display indications of interest or quotations in cryptocurrencies and other virtual coins and tokens;
- provide or facilitate clearance and settlement services for cryptocurrencies and other virtual coins and tokens; or
- recording cryptocurrencies and other virtual coins and tokens using distributed ledger technology or any other use of blockchain technology.
It is our position that cooperation with regulators is optimal to foster a firm’s culture of compliance. FINRA and SEC have been clear regarding their heightened awareness related to investor protection. Digital assets are an evolving area with limited regulatory guidance. Keeping the lines of communication open with regulators is critical. However, there is concern that FINRA is stepping outside the lines, slightly, by inquiring of business activities of a member’s affiliates, particularly in this developing area. If you need assistance in responding to any regulatory request or have any questions regarding this Regulatory Notice, please do not hesitate to contact an ARG Compliance Analyst.