FINRA encouraged firms to continue communications with their Risk Monitoring Analysts on firm activities related to digital assets. FINRA issued similar requests in 2018 and 2019 (see here and here). The "request" is now in effect until July 31, 2021.
FINRA is requesting continuing disclosure on:
- transactions in (i) digital assets, (ii) pooled funds investing in digital assets and (iii) derivatives (e.g., futures and options) tied to digital assets;
- "participation in an initial or secondary offering of digital assets (e.g., [an initial coin offering, or ICO], or pre-ICO)";
- the "creation or management of a platform for the secondary trading of digital assets";
- the "acceptance of cryptocurrencies (e.g., bitcoin) from customers";
- the "mining of cryptocurrencies";
- "clearance and settlement services for cryptocurrencies and other virtual coins and tokens"; and
- "recording cryptocurrencies and other virtual coins and tokens using distributed ledger technology or any other use of blockchain technology."
Commentary Conor Almquist
Since 2018 FINRA has worked to promote open dialogue with firms relating to digital assets. By this Notice, FINRA is extending its request for firms to notify their Risk Monitoring Analyst of any digital asset activities. Although FINRA has not issued new rules specific to digital assets, the current Notice is consistent with FINRA's 2020 Risk Monitoring and Examination Priorities, which indicated an ongoing focus on the application of securities laws to digital asset related business plans and an intention to coordinate with the SEC. (Such coordination was exemplified by the July 2019 SEC and FINRA joint statement regarding application of custody rules to digital assets.) Expect FINRA's scrutiny of digital asset activity to increase in the future.
Originally published July 09, 2020.
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