FINRA’s Annual Regulatory Oversight Report Includes Crypto Assets for the First Time
The Financial Industry Regulatory Authority (FINRA) has released its 2024 Annual Regulatory Oversight Report, which includes a dedicated section on crypto assets. FINRA is a self-regulatory organization that oversees securities broker-dealers in the US. This is the first time that the authority has included crypto assets in its annual report.
FINRA Advises Caution and Addresses Regulatory Challenges
In its report, FINRA advises caution when engaging in crypto asset-related activities. The authority urges firms to address the regulatory challenges and risks involved in the crypto industry. FINRA defines crypto assets as assets issued or transferred using distributed ledger or blockchain technology.
The Report Details Compliance and Regulatory Measures
The 90-page report provides detailed information on compliance and regulatory measures for firms seeking to engage in crypto asset-related activity. It emphasizes the need for firms to review and evaluate their supervisory programs, controls, compliance policies, and procedures. Areas of focus include cybersecurity, AML compliance, communication with customers, and due diligence on crypto asset private placements.
Rising Concerns About Security Breaches
The report highlights the increasing involvement of malicious actors in the crypto space. These actors exploit assets with low market caps and engage in manipulative schemes similar to those seen in the equities market. While crypto hacks saw a decline in losses in 2023, security breaches remain a significant concern for the industry.
Following SEC Guidance and Membership Benefits
FINRA falls under the purview of the US Securities and Exchange Commission (SEC). The annual oversight report serves as a tool for informing compliance programs. It addresses crypto asset developments and advertised volume and is targeted towards firms currently engaged in or intending to engage in crypto asset-related activities. Membership in FINRA’s program allows firms to serve as placement agents, operate alternative trading systems for crypto asset securities, and provide custody services.
A Comprehensive Checklist and SEC Compliance
The report includes a checklist for SEC compliance and describes FINRA’s Membership Application Program (MAP), which follows the SEC’s guidance in assessing a firm’s proposed crypto asset securities business line. The program has approved firms to engage in crypto asset securities business, such as serving as placement agents, operating alternative trading systems, and providing custodial services.
Hot Take: FINRA’s Dedication to Addressing Crypto Assets in Its Annual Report Reflects the Growing Importance of the Industry
FINRA’s inclusion of a dedicated section on crypto assets in its Annual Regulatory Oversight Report demonstrates the increasing significance of cryptocurrencies and blockchain technology in the financial industry. By urging caution and addressing regulatory challenges, FINRA aims to promote responsible engagement in the crypto space. With the rising concerns about security breaches and the need for compliance with SEC guidance, the report provides valuable information for firms involved or planning to be involved in crypto asset-related activities. As the crypto industry continues to grow and evolve, regulatory oversight and transparent reporting will remain crucial for a healthy and secure market.
By
By
By
By
By
By