Shearman & Sterling LLP | FinTech Insights | FINRA Requests that Firms Disclose Digital Asset Activity
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  • FINRA Requests that Firms Disclose Digital Asset Activity
    07/24/2018
    Earlier this month, the Financial Industry Regulatory Authority called on its members to notify FINRA if they, or any associated persons or affiliates, engage, or plan to engage, in any activities related to digital assets.  In the notice to members, FINRA also asked firms to inform their regulatory coordinators up until July 31, 2019, if they, or any associated persons or affiliates, begin to engage in activities related to digital assets that have not been previously disclosed.

    Any firms that have already disclosed these activities by way of FINRA’s 2018 Risk Control Assessment Survey or submitted a continuing membership application regarding engagement in these activities are not asked to provide additional information unless any changes have occurred.

    FINRA’s request suggests that it still working to understand the extent to which broker-dealers are involved in the digital asset space and whether the emerging asset class poses risks to investors.While it is unclear if FINRA has plans to draft any rules or take any further action related to digital assets in the coming months, it is clear that digital assets are on FINRA’s radar.

    Activities related to digital assets for which FINRA specifically expects notice include:
     
    • purchases, sales or executions of transactions in digital assets;
    • purchases, sales or executions of transactions in a pooled fund investing in digital assets;
    • creation of, management of, or provision of advisory services for, a pooled fund related to digital assets;
    • purchases, sales or executions of transactions in derivatives (e.g., futures, options) tied to digital assets;
    • participation in an initial or secondary offering of digital assets (e.g., ICO, pre-ICO);
    • creation or management of a platform for the secondary trading of digital assets;
    • custody or similar arrangement of digital assets;
    • acceptance of cryptocurrencies (e.g., bitcoin) from customers;
    • mining of cryptocurrencies;
    • recommending, soliciting or accepting orders in cryptocurrencies and other virtual coins and tokens;
    • displaying indications of interest or quotations in cryptocurrencies and other virtual coins and tokens;
    • providing or facilitating clearance and settlement services for cryptocurrencies and other virtual coins and tokens; or
    • recording cryptocurrencies and other virtual coins and tokens using distributed ledger technology or any other use of blockchain technology.