FINRA to Issue Cryptocurrency Regulatory Notice

Among the millions of new retail investors during the pandemic and concerns about Low financial literacy of Americans, FINRA plans to issue a regulatory notice on the cryptocurrency.

Guidance to more than 3,400 firms and 617,000 registered representatives overseen by FINRA will cover “rules relating to the sale of crypto assets by or through our member firms and in particular advertising and disclosure requirements,” it said. said CEO Robert Cook during a webinar held on January 2. 19 by the Compliance and Legal Society of the Securities Industry and Financial Markets Association. With massive investor interest in cryptocurrency and related technology, and major industry concern over the composition of all pending rules, Cook said that FINRA “does not seek to regulate or fundamentally change the regulatory structure” since it defers to the SEC, Congress and other federal agencies on the issue of standards governing digital assets .

In addition to discussing cryptocurrency, Cook mentioned possible updates to FINRA rules regarding opening options accounts and broker cuts. Both topics come up frequently in regulatory and arbitration affairs and, as with digital assets, many rules regarding options and complex products in general stem from a time before the internet and smartphone apps.

Regarding cryptocurrency, FINRA’s guidance to members will explain current guidance and consider “how should these rules evolve and ensure that we protect investors appropriately,” Cook said. . Later, SIFMA CEO Kenneth Bentsen asked Cook to elaborate for the audience of brokerage compliance professionals.

Many digital currency retail clients “may not be aware that they are switching from the broker regime to a different regime because they are dealing with the same broker” while investing in various new products on the market, Cook replied.

“Our member companies are involved in the sale of digital assets today, some titles, some not,” Cook said. “And when customers interact with one of our members and then buy a cryptocurrency or purchase a digital asset, there are disclosure rules that apply today. And we want to take this opportunity to talk about that and also to see if there are any additional enhanced requirements that should apply when people buy a product that’s regulated as a safety product and then buy a product that’s not not regulated.

Cook gave no timeline for the release of the notice, though it will surely catch the attention of businesses and representatives when it comes out. According to Earl Carr, CEO of research, advisory and advisory firm CJPA Global Advisors, clients of all ages want more information about non-fungible crypto tokens and the uses of blockchain ledgers. Digital currency can act as a source of diversification in a portfolio, and emerging technologies aimed at reducing electricity obligatory for crypto assets like Bitcoin could turn them into a sustainable investment, Carr said.

“Most people would say it’s sort of antithetical to ESG,” he said. “The more we can develop other kinds of alternative uses and ways to redefine an environmentally good cryptocurrency, that’s something that would really resonate with a lot of investors.”

Last years Short press GameStop showed the potential risks of growing investor embrace of options and leverage at the same time. He also came after compliance cases abound and arbitration awards involving margin transactions or products and strategies using them. In the coming months, FINRA plans to issue a separate regulatory notice asking firms to comment on how it should proceed with any new rules regarding opening options accounts, Cook said.

“These rules were adopted a long time ago – decades and decades –,” he said. “We’ve seen this tremendous innovation to make our markets more accessible to retail investors, but some of these rules were kind of based on certain assumptions about how you open an account and how you access these markets that don’t apply more in all circumstances. And so it’s really a question of whether these sets of rules need to be adjusted in light of technological changes.

In addition to issuing the two notices, FINRA aims to work on two different fronts this year with respect to arbitration broker delistings. Over the next few months, FINRA will release a white paper that provides “statistical data and analysis and discussion of what’s happening in the delisting space today,” as well as alternative approaches to broker-dealer requests for remove a customer complaint from their permanent file in the central registry repository, Cook said.

“And then we want to engage in deeper dialogue with all interested stakeholders in this space in parallel, because designing any new system is going to take time,” he said. “We want to continue working on a revised set of amendments to the existing arbitration process, and we believe these amendments would help provide greater confidence that disbarments only occur in accordance with the type of limited circumstances identified. in our rules, where the CRD information is clearly inaccurate.

One such stakeholder, the Public Investors Arbitration Bar Association Foundation, is awaiting engagement with FINRA after it withdrew a proposed rule last year that the client is defending. group criticized as insufficient, President Lisa Bragança of Law of Braganza said in an interview earlier this month. Cook made similar comments on delisting in autumn.

“Despite the fact that the Foundation and PIABA have published reports and studied this over the years, FINRA has not told us what they are doing,” Bragança said. “The rule was withdrawn in May. Since then, they have nothing to say to us and they don’t want to hear from us anymore. We contacted each other several times. If they work with stakeholders, they chose other stakeholders.