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FINRA seeking extent of member firms’ involvement in cryptocurrency

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Peter Terlato
Posted: 9 July 2018 12:40 pm
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The regulator realizes there are investor protection concerns amidst the growing cryptocurrency market.

The United States Financial Industry Regulatory Authority (FINRA) has requested firms that it monitors to advise whether they engage in any activities related to digital assets, such as cryptocurrencies, coins or tokens.

The private corporation that acts as a self-regulatory organization issued a regulatory notice on its website on Friday, encouraging member firms to inform their regulatory coordinator of any company involvement, either by associated persons or affiliates, in cryptocurrencies.

Some companies have already provided FINRA this information by way of the 2018 Risk Control Assessment (RCA) Survey. Others have submitted a continuing membership application (CMA) regarding their involvement.

The market for digital assets, such as cryptocurrencies and other virtual coins and tokens, has grown significantly and has increasingly been of interest to retail investors. At the same time, investor protection concerns exist, including incidences of fraud and other securities law violations involving digital assets and the platforms on which they trade. As such, FINRA has a keen interest in remaining abreast of the extent of member involvement in this space.

FINRA on the reasons why it’s important to understand its firms’ crypto activities

FINRA detailed the types of activities that pertain to cryptocurrencies:

  • purchases, sales or executions of transactions in digital assets
  • purchases, sales or executions of transactions in a pooled fund investing in digital assets
  • creation of, management of, or provision of advisory services for, a pooled fund related to digital assets
  • purchases, sales or executions of transactions in derivatives (e.g. futures, options) tied to digital assets
  • participation in an initial or secondary offering of digital assets (e.g. ICO, pre-ICO)
  • creation or management of a platform for the secondary trading of digital assets
  • custody or similar arrangement of digital assets
  • acceptance of cryptocurrencies (e.g. bitcoin) from customers
  • mining of cryptocurrencies
  • recommend, solicit or accept orders in cryptocurrencies and other virtual coins and tokens
  • display indications of interest or quotations in cryptocurrencies and other virtual coins and tokens
  • provide or facilitate clearance and settlement services for cryptocurrencies and other coins and tokens
  • recording cryptocurrencies and other coins and tokens using distributed ledger technology or blockchain

FINRA suggests firms consider all applicable federal and state laws, plus FINRA and SEC rules and regulations.

Robinhood, which allows people to trade stocks and cryptocurrencies commission-free, is a FINRA member.

In mid-April this year, FINRA fined Tezos co-founder Arthur Breitman $20,000 and suspended the cryptocurrency executive from associating with broker-dealers for up to two years as part of a legal settlement.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Crypto explained

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