FINRA Executives Remind Firms of Regulatory Obligations on Crypto

FINRA Senior Director of the Cyber and Analytics Unit, Jamie Udinson, and colleagues from FINRA's Risk Monitoring and Exams programs described developments on FINRA's crypto asset work.

On the podcast FINRA Unscripted, the FINRA executives touted the Crypto Asset Hub, which is "an enterprise-wide strategy for keeping up with the evolving crypto asset regulatory landscape."

The FINRA executives reported recent survey results showing a significant uptick in firms having an interest in crypto activities, though "many of them are in the exploratory and testing phase." They reported that 37 firms are now approved to engage in some activity related to crypto including as private placement agent or to facilitate secondary market trading. The executives also said that the survey results show an increase in the "number of associated persons, reps having a crypto asset business disclose as an outside business activity." They cautioned that firms are obligated to understand the outside business activities of their registered representatives and whether those activities could be private securities transactions. Further, they said that firms should be reviewing their due diligence efforts related to crypto products, outside vendors, anti-money laundering and cyber security and advertising and disclosure.

The executives also discussed recent developments since the SEC approved spot Bitcoin ETFs, including "a steady increase in broker-dealer activity, albeit somewhat concentrated in the number of firms that have sought to engage in such trading." They said that "at the end of May, we've seen just under 6 billion, with a B, shares across 11 listed symbols, totaling approximately $58 billion in value in just over 1 million individual customer accounts." They stated that "FINRA is certainly thinking about these products in a variety of different ways," including from an investor firm standpoint, taking the firm's supervisory procedures and processes for compliance into consideration.

The executives highlighted FINRA's 2024 Regulatory Oversight report as a source of information. (See related coverage.)