SEC to Keep Close Watch on Crypto Brokers and Advisers
This year, cryptocurrency brokers and financial advisors that provide or provide advice regarding cryptocurrencies will be brought within the jurisdiction of the United States Securities and Exchange Commission (SEC).
In a statement released on February 7, the Division of Examinations of the Securities and Exchange Commission (SEC) outlined its priorities for the year 2023. The statement suggested that brokers and advisers dealing in cryptocurrency will need to exercise increased caution when offering, selling, or providing recommendations regarding digital assets.
It was said that SEC-registered brokers and advisors would be extensively monitored to see whether or not they followed their "respective standards of care" while offering financial advice, making recommendations, or referring clients to other professionals.
The Securities and Exchange Commission will also investigate whether or not these organizations "routinely" evaluate and update their processes in order to guarantee that they adhere to "compliance, transparency, and risk management policies."
This announcement was very similar to the priorities that were released by the SEC in 2022; however, it appears that this year the regulator is placing more emphasis on the standards of care and practices by brokers rather than their consideration of the unique risks presented by "emerging financial technologies," which was highlighted in 2022.
The most recent statement was issued after a report indicated that the SEC has been examining registered investment advisors that may be delivering digital asset custody to their customers without necessary credentials. The article was published almost two weeks after the most recent statement.
According to a report from Reuters, the investigation being conducted by the SEC has apparently been ongoing for a number of months but has been elevated to the top of the priority list after the failure of the cryptocurrency exchange FTX.
The Investment Advisers Act of 1940 stipulates that in order for investment advice businesses to be eligible to provide custody services to customers, the firms must also comply with the custodial precautions that are outlined in that act.