FINRA Issues Notice to Firms Involved in Cryptocurrencies

Cryptocurrencies The Financial Industry Regulatory Authority (FINRA) issued a regulatory notice (18-20) on July 6, 2018 titled: “FINRA Encourages Firms to Notify FINRA if They Engage in Activities Related to Digital Assets.” In summary, the notice request that firms “promptly notify FINRA” if they or their associated persons or affiliates are presently engaging or intend to engage in “any activities related to digital assets, such as cryptocurrencies and other virtual coins or tokens.”

As the notice observes, the market for digital assets like cryptocurrencies “has grown significantly” in recent years, becoming more attractive to retail investors. However, the market has seen “incidences of fraud and other securities law violations,” which raise concerns for investors. Hence FINRA reminds firms involved in digital assets to bear in mind all relevant state laws, rules and regulations. It has also requested that firms inform their Regulatory Coordinator if they or their persons or affiliates are involved in, or intend to be involved in, a number of activities including:

–“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;”
–“mining of cryptocurrencies;”

A complete list of activities of interest is available in FINRA’s notice, though FINRA clarifies that the types of activities of interest include but are not limited to the ones enumerated. Firms are encouraged to notify their Regulatory Coordinator in writing if the notice applies to them; if they have made a “material change” in their business operations, they are also required to submit and receive approval of a CMA. Firms are also encouraged to keep their Regulatory Coordinator updated about new developments in the firm’s engagement in—or intention to engage in—such activities until July 31, 2019.

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