What You Need to Know
- Its Division of Examinations issued an alert for investment advisors, BDs, exchanges and transfer agents.
- The alert focuses on compliance with regulations related to the offer, sale and trading of digital securities to investors.
- The division reports that some activities related to those pursuits
The SEC’s Division of Examinations has alerted investment advisors, broker-dealers, national securities exchanges and transfer agents that it will be focusing on their compliance with regulations related to the offer, sale and trading of digital securities to investors.
Such offerings and transactions are growing in popularity along with the use of cryptocurrencies, but questions remain about what constitutes a digital security.
Former SEC Chairman Jay Clayton had said that Bitcoin was not a digital security but a payment mechanism and store of value while initial coin offerings (ICOs) could be securities but would have to be registered with the SEC before they were sold.
The SEC risk alert acknowledges that “as financial innovation continues, market participants may have questions as to their regulatory obligation,” and should contact agency staff through the SEC’s Innovation Technology hub (FinHub) with their questions.
The alert notes, “It is the Division’s experience that a number of activities related to the offer, sale and trading of digital assets that are securities present unique risks to investors.”
The examinations division encourages market participants to consider their own practices, policies and procedures that apply to digital assets, and improve supervisory, oversight and compliance programs.
Its risk alert lists in some detail which types of activity and policies it will be watching for each group of market participants — investment advisors, BDs, national securities exchanges and transfer agents.