“The cryptocurrency and ICO markets have grown rapidly and present a number of risks for retail investors,” OCIE said in a February report outlining its exam priorities for this year. “Areas of focus will include, among other things, whether financial professionals maintain adequate controls and safeguards to protect these assets from theft or misappropriation.”
To be sure, some brokerages and money managers have reported their involvement to regulators and have asked for guidance to ensure they’re complying with the law. Others have been less forthcoming, and the regulatory landscape is complicated by legal wrangling over which assets should be considered securities under the SEC’s jurisdiction.
In addition to asking brokerages about whether they’ve been involved with ICOs, the SEC has also been questioning firms over their clearing agreements, as well as personnel and other in-house matters, one of the people said. Finra, the front-line brokerage regulator overseen by the SEC, sent firms a notice last month asking them to notify the agency if they get involved with digital assets.
NFA, the industry-funded regulator for the derivatives industry, notified the Commodity Futures Trading Commission last month that it plans to require that firms dealing in the cryptocurrency derivatives and cash markets make additional disclosures.
“This seems to be transitioning from where the house is on fire to incorporating supervision of the intermediaries,” said Jeff Bandman, principal at Bandman Advisors whose clients include crypto firms.
This article was provided by Bloomberg News.