In a year defined by increased regulatory scrutiny and a surge in enforcement actions within the cryptocurrency sector, the US Securities and Exchange Commission (SEC) exhibits a steadfast commitment to maintaining its regulatory momentum.
The SEC’s Division of Examinations has just disclosed its priorities for 2024, hinting at the possibility of more stringent regulations being applied to crypto exchanges, companies, and digital assets categorized as ‘securities’ according to the Howey Test within the SEC’s purview.
- In a year that has seen increased regulatory oversight and enforcement measures targeting the cryptocurrency sector, the US Securities and Exchange Commission (SEC) remains unwavering in its commitment to maintaining strict control.
- The SEC will be conducting comprehensive evaluations of independent testing, customer identification programs (including the beneficial owners of legal entity customers), and adherence to Office of Foreign Assets Control (OFAC) sanctions.
- With the crypto market remaining highly volatile and active, the Division will persist in its vigilant oversight and examination of registered entities.
Crypto Industry Under Greater Regulatory Spotlight for 2024.
In a recent announcement on October 16, the SEC has turned its gaze towards the expanding realm of cryptocurrency assets, related offerings, and the fast-evolving financial technology landscape.
The SEC’s primary focus will be on broker-dealers and advisers who introduce novel products and services, with a particular emphasis on those leveraging technology and online solutions to address compliance and marketing requirements. Their scrutiny will extend to automated investment tools, artificial intelligence, trading algorithms, platforms, and the potential risks associated with emerging technologies and alternative data sources.
Given the ongoing volatility and activity in the crypto market, the Division will continue to closely monitor and conduct examinations of registrants. These examinations will assess the offer, sale, recommendation, advice, trading, and other activities related to crypto assets or their associated products.
The Division will review whether registrants meet appropriate standards of conduct when advising customers on crypto assets, particularly about retail-based investors, including older investors and investments involving retirement assets. Compliance practices, risk disclosures, and operational resiliency will also be evaluated.
AML Compliance In Focus
For crypto assets categorized as funds or securities, the Division will consider whether advisers comply with the custody requirements mandated by the Advisers Act.
Furthermore, the Division will examine the adequacy of compliance policies and procedures, disclosure accuracy, and security risks associated with using blockchain and distributed ledger technology.
The Division’s focus also extends to anti-money laundering (AML) programs, ensuring that broker-dealers and registered investment companies tailor their AML programs to their business models and associated risks.
Independent testing, customer identification programs (including beneficial owners of legal entity customers), and compliance with the Office of Foreign Assets Control (OFAC) sanctions will be thoroughly reviewed.
Ultimately, policies and procedures for overseeing applicable financial intermediaries will also be scrutinized for registered investment companies.
The impact of the actions taken by US regulatory bodies in 2024 on the innovation and growth of the industry remains uncertain. However, given the current crackdown, there is a significant possibility that enforcement actions will continue to escalate throughout the remainder of this year and into 2024 unless there are changes in the leadership of the SEC.
Featured image from Shutterstock, chart from TradingView.com