SEC and FINRA assess new crypto rules

FINRA is considering new rules targeting the “narrow issue” of disclosures for wealth managers and other members who offer certain cryptocurrency assets, CEO Robert Cook said.

Cook made the comment during a panel hosted with SEC Commissioner Hester Peirce and other regulators from New York Law School’s Ronald H. Filler Institute for Financial Services Law. While Peirce plunged into the growing debate in the industry and among regulators As for the rules that should govern digital currencies such as Bitcoin and Ethereum, and technologies such as blockchain, Cook sought to minimize the impact of any possible new FINRA standards.

Citing the example of a 2018 to reign published by the National Futures Association requiring new disclosures for members engaged in virtual currency activities, Cook called the issue a “question mark” worthy of more industry commentary on situations where companies or their representatives are ‘the gatekeeper or front-end offering products to clients which may not be securities products.

“We are looking at this closely to decide whether it would be appropriate for us to provide a similar type of advice to our businesses, as investors might think, ‘I am dealing with a regulated entity that is selling regulated products to me,'” Cook mentioned. “They don’t offer it to anyone. They offer it in someone else’s name. And it may not be clear that some of the same protections or sets of rules apply.

Cook said “the broad subject of who regulates crypto assets” is important, but did not take a position on what kind of structure or regulatory regime should be put in place by the Biden administration. The uncertainty surrounding compliance risk has caused many advisors and companies to balk at the idea of ​​working with crypto in any capacity. However, more large companies are jump at the chanceand startups are trying to encourage greater adoption as well as.

In line with previous comments Pierce called for caution against government excesses over crypto assets and his previous stance at George Mason University’s Mercatus Center anti-regulation think tank, the Trump administration appointee said. warned that some proponents of new rules are missing the point of currency and technology.

SEC Commissioner Hester Peirce took office in January 2018 after serving in previous roles with the agency and a stint as senior counsel to Republican members of the U.S. Senate Banking Committee, housing and urban affairs.


“They are afraid to see this asset class growing so quickly. They are concerned that this may create competition for some of the government’s activities. And they’re afraid it’s going to be harder for the government to regulate financial services,” Pierce said.

“Regulation born out of fear is probably not going to be very good,” she continued. “The first thing we need to do is just take a step back, recognize that there are risks associated with crypto, but also recognize that there are real positives and people are really finding value. in this asset class and what it could mean for the future of society. It’s not just an asset class, but it’s a new way of coordinating human activity. It’s a new way to transfer value over the internet, something we haven’t been able to do effectively before. »

Cook agreed with Pierce that the SEC should work with the CFTC and Congress on all jurisdictional issues related to developing crypto regulations. In the meantime, FINRA is “working to get smart” about crypto assets and technology in general, he said.

For starters, FINRA is building its own analytics tools allowing the regulator to act as a node and block explorer on common blockchains to track activity. Additionally, it is embedding digital ledger technology into its own internal processes, though Cook refrained from offering specifics.

“We have identified a business process where we believe these techniques could add real value, and we are in the process of developing a pilot project to adopt blockchain technology in what we do, which I hope will will ultimately lead to a better understanding of the issues,” he said.