Crypto compliance softer approach seen in SEC priorities for 2020
The U.S Securities and Exchange Commission (SEC) has revealed it has set its crypto compliance strategy right for the New Year 2020.
Because of several oversight requirements posed by cryptocurrency, Office of Compliance Inspections and Examinations (OCIE) that regulates activities in the crypto industry published its list of 2020 examination priorities, highlighting digital assets and service providers as areas of concern.
The 2020 crypto compliance strategy draws a similar comparison to the previous annual priorities. However, Tuesday’s publication provided a glimpse at how the office’s approach to crypto has evolved since 2018.
The new release includes new financial technologies, including digital assets among major concerns in the coming fiscal year, unlike last year’s outline that briefly mentioned initial coin offerings and the risks digital assets might pose to retail investors.
SEC also explained that new technological developments in capital formation and investment advice warrant ongoing attention and review.
Major 2020 risks to investors
Although the SEC document addresses investment suitability, trading practices, fund safety, pricing and the effectiveness of compliance programs, it focuses more on crypto compliance. It pinpoints risks posed to retail investors who jump into the emerging crypto market without understanding how crypto assets differ from traditional investments.
The document indicated that OCIE would continue to identify and examine SEC-registered market participants engaged in the crypto space particularly transfer agents or intermediaries in securities transactions who are “developing blockchain technology or are providing services to digital asset issuers”.
Crypto compliance softer approach
Although the United States SEC will be looking for greater crypto compliance in 2020, the announcement hints at a “softening of attitude”. Fintech and digital assets are added to the SEC’s annual priorities list but crypto compliance will be particularly closely scrutinized.
The SEC has broadly stepped up its engagement with cryptocurrencies, particularly initial coin offerings (ICOs). However, SEC Commissioner Hester Peirce expressed interest in promoting a more flexible regulatory approach to crypto offerings.
She said this in an interview and mentioned that SEC would identify offerings that don’t fall under the SEC’s purview.
The biggest thing the crypto community needs is a way to get from security offering to a utility token offering that is not covered by securities laws or is not covered by the full panoply of the securities laws, she commented.
Change in crypto market operations through disclosures
The section on Fraud, Sales Practices, and Conflicts particularly enumerated the following:
It is critically important that registered firms provide investors with the disclosures required by the federal securities laws, including those relating to fees and expenses, and conflicts of interest, which will help enable the investing public to make better-informed choices. Registered firms must effectively implement controls and systems to ensure those disclosures are made as required and that a firm’s actions match those disclosures.
Particular focus will be on (1) seniors, including recommendations and advice made by entities and individuals targeting retirement communities; and (2) teachers and military personnel.
Stakeholders are concerned that the entry of the SEC will fundamentally change the way in which cryptocurrency markets work. OCIE encourages market participants to actively and effectively engage regulators and law enforcement in identifying and addressing information security risks. In effect, crypto compliance is seen as benefiting the community as a whole.
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