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FINRA will review broker-dealer crypto communications

The Financial Industry Regulatory Authority (FINRA) announced an inspection sweep of broker-dealers' and their affiliates' retail communications regarding cryptocurrency asset products and services.

The Monday statement requires broker-dealers furnish all retail communications on crypto assets made to 25 or more investors between July 1 and September 30. Written communications, video, social media posts, mobile applications, and websites are all examples of retail communications. FINRA stated that communications encompassed by the sweep would pertain to a service involving the holding or trading of crypto assets.


The Department of Justice (DOJ), the Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC) have each expressed a desire within their respective agencies to control specific segments of the cryptocurrency market. The Department of Justice formed a national cryptocurrency enforcement unit. Despite the fact that regulators and legislators have been calling for tighter regulation for some time, the collapse of one of the world's major cryptocurrency exchanges, FTX, this month may heighten the need to act.

Broker-dealers should be wary of their crypto-related activities moving forward, given the greater regulatory scrutiny such activities will likely face, according to a blog post published on Wednesday by law firm Morgan Lewis Partners Ignacio Sandoval, Amy Natterson Kroll, and Sarah Riddell.


Broker-dealers regulated by FINRA are required to produce each communication within the specified timeframe, noting the date it was made public, the cryptocurrency it referenced, whether it was filed with FINRA's advertising regulation department, and whether it was approved by a registered principal of the firm.


FINRA has also requested that firms provide written supervisory procedures regarding crypto asset communications, including review, approval, recordkeeping, and dissemination; compliance policies, training manuals, bulletins, and any other written guidance on crypto asset communications; and contracts or written agreements between a broker-dealer and affiliates regarding the latter's creation and dissemination of such communications, as well as how the affiliate determines whether or not to comply with the firm's policies and procedures.


According to a Morgan Lewis blog post, portions of FINRA's sweep remain ambiguous, and broker-dealers should provide a "thoughtful" response.


“It is unclear which communications FINRA will consider involving a broker-dealer affiliate, especially where entities use similar names,” the post said.

By fLEXI tEAM



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