SEC to Closely Monitor Crypto Brokers and Advisors

This year, cryptocurrency brokers and financial advisors who sell or provide advice regarding cryptocurrencies will be brought under the jurisdiction of the United States Securities and Exchange Commission (SEC).

In a statement released on February 7, the Securities and Exchange Commission’s (SEC) Examinations Division outlined its priorities for the year 2023. The statement suggested brokers and advisors dealing in cryptocurrencies may offer, sell, or provide recommendations with respect to digital assets.

It said that SEC-registered brokers and advisors would be subject to extensive monitoring to see that they followed their “relevant standards of care” when providing financial advice, making recommendations, or referring clients to other professionals. Or not.

The Securities and Exchange Commission will also check whether these organizations “regularly” assess and update their processes to guarantee that they adhere to “compliance, transparency and risk management policies.”

The announcement was similar to the priorities released by the SEC in 2022; However, it appears that this year the regulator is placing more emphasis on standards of care and practices by brokers, rather than considering the unique risks presented by “emerging financial technologies”, which were highlighted in 2022.

The most recent statement was issued following a report indicating that the SEC is investigating registered investment advisors who may be providing digital asset custody to their clients without the required credentials. The article was published about two weeks after the most recent statement.

The SEC investigation has apparently been ongoing for several months, according to a Reuters report, but has been pushed to the top of the priority list following the fiasco of cryptocurrency exchange FTX.

The Investment Advisors Act of 1940 stipulates that for investment advice businesses to be eligible to provide custodial services to clients, the firms must also comply with the custodial precautions outlined in that act.


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