1/ The SEC just announced its Examination & Compliance priorities for the next year. On the list of six priorities, "digital assets" were listed as a category, and defined as "cryptocurrencies, coins, and tokens."
Here is what it means to be on the priority list ⬇️
Here is what it means to be on the priority list ⬇️
2/ For context, the SEC's Office of Compliance Inspections and Examinations (OCIE) is one division of the SEC, and they carry out the SEC’s National Exam Program. The program generally is aimed to ensure market integrity, assess risk, and prevent fraud.
3/ This exam program is divided into a couple of areas: investment advisers, broker-dealers, clearance & settlement, etc.
The SEC obviously does not have the resource to focus on every single participant, so it has to pick and choose its priorities each year.
The SEC obviously does not have the resource to focus on every single participant, so it has to pick and choose its priorities each year.
4/ Generally speaking, bulge bracket banks and other high profile funds will be examined once a year (sometimes more, sometimes less). Aside from that, the OCIE will then list out areas of priority to carry out examinations.
In 2019, that will include "digital assets".
In 2019, that will include "digital assets".
5/ Within "digital assets", the SEC has listed the following:
+ the offer and sale, trading, and management of digital assets;
+ to identify market participants -- including those considering-- the offering, selling, trading, and managing of digital assets;
[cont.]
+ the offer and sale, trading, and management of digital assets;
+ to identify market participants -- including those considering-- the offering, selling, trading, and managing of digital assets;
[cont.]
6/ [cont.]
+ For firms actively engaged in the digital asset market, SEC will conduct examinations focused on (among other things) portfolio management of digital assets, trading, safety of client funds and assets, pricing of client portfolios, compliance, and internal controls.
+ For firms actively engaged in the digital asset market, SEC will conduct examinations focused on (among other things) portfolio management of digital assets, trading, safety of client funds and assets, pricing of client portfolios, compliance, and internal controls.
7/ Basically, if you have been determined to fail any of the components as required by the program wrt to the various areas like cybersecurity, market controls, AML-- the OCIE will then refer that to the Enforcement division, which will then determine the penalties.
8/ As I said earlier, this examination process is expected at any major bank/fund/ etc. And now for digital asset managers.
So...document all of your processes. Hire a compliance team (pls!!). Codify important policies (such as insider trading, etc). And hire real lawyers.
So...document all of your processes. Hire a compliance team (pls!!). Codify important policies (such as insider trading, etc). And hire real lawyers.
9/ IMO, I don't read this as a negative thing.
I would read this as a sign that regulators are taking crypto seriously as an industry. Compliance is part of crypto's path to professionalization and maturation-- and most importantly, to clean up its act.
I would read this as a sign that regulators are taking crypto seriously as an industry. Compliance is part of crypto's path to professionalization and maturation-- and most importantly, to clean up its act.
