The Financial Industry Regulatory Authority—a self-regulatory organization that works with the Securities and Exchange Commission to oversee brokerage firms and exchanges—wants those firms to alert it if they engage in activities related to digital assets and cryptocurrencies.
In a regulatory notice released on Friday, FINRA said it was monitoring developments in the digital asset marketplace and is undertaking efforts to ascertain the extent of its members’ involvement. It says it is issuing the notice “to encourage each firm to promptly notify FINRA if it, or its associated persons or affiliates, currently engages, or intends to engage, in any activities related to digital assets, such as cryptocurrencies and other virtual coins and tokens.”
Also, until July 31, 2019, FINRA encourages each firm “to keep its regulatory coordinator abreast of changes in the event the firm, or its associated persons or affiliates, determines to engage in activities relating to digital assets not previously disclosed.”
The marketplace for digital assets “has grown significantly and has increasingly been of interest to retail investors,” FINRA says in the notice. “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.”
Firms that engage or begin to engage in such activities are reminded to consider all applicable federal and state laws, rules, and regulations, including FINRA and SEC rules and regulations.
For purposes of the Regulatory Notice, the term “digital asset” refers to cryptocurrencies and other virtual coins and tokens (including virtual coins and tokens offered in an initial coin offering [ICO] or pre-ICO), and any other asset that consists of, or is represented by, records in a blockchain or distributed ledger (including any securities, commodities, software, contracts, accounts, rights, intangible property, personal property, real estate or other assets that are “tokenized,” “virtualized” or otherwise represented by records in a blockchain or distributed ledger).
Activities of interest to FINRA include:
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 (such as futures and options) tied to digital assets;
Participation in an initial or secondary offering of digital assets (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 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 virtual coins and tokens; and
Recording cryptocurrencies and other virtual coins and tokens using distributed ledger technology or any other use of blockchain technology.
Digital assets that meet the definition of an “investment contract” under the Securities Act or Securities Exchange Act are “securities” governed by the federal securities laws and FINRA rules, irrespective of whether they are labeled as “securities.”