As the traditional financial world begins to adopt crypto assets as mainstream, the process of legitimizing digital assets as financial products poses numerous risks and regulatory challenges.
Sec’s Future Crypto Regulations
Today, the US Securities and Exchange Commission (SEC) released an 8-page document detailing the framework under which the agency will examine digital asset investments.
Seeking regulatory compliance across a range of areas from custody, bookkeeping, recording requirements to conflict of interest protocols, the SEC has made it clear to major broker-resellers and investment advisors that digital assets will face similar levels of scrutiny as traditional securities.
The SEC, for example, stated that it “observes inadequate [Anti-Money Laundering] procedures, controls and documentation” due to the decentralized nature of many digital assets.
Strict Know Your Customer (KYC) procedures will be implemented for consulting registered with the Financial Industry Regulatory Authority (FINRA) in line with the FINRA Rule 2090.
Many of the important regulations revitalize traditional financial practices and only reapply them to digital investments. However, new concerns have also emerged due to fundamental differences between asset classes. Questions such as how much control an investment firm should have over its clients’ private keys are one of the many new issues raised in the compliance statement.
The timing of the report does not match any recent events. However, the prevalence of social media platforms in the explosive rise of altcoins like Dogecoin likely spurred discussion within the SEC about the potential dangers of an unregulated industry.
However, the authorities described the notice as a reminder of the risks that may be associated with digital assets and the need for compliance frameworks to protect the common interests of market participants.