The U.S. Securities and Exchange Commission (SEC) has released its fiscal plan for 2024, outlining its heightened regulatory focus on cryptocurrency and associated financial technologies. The SEC’s Division of Examinations has emphasized the need to address emerging market risks, with a specific attention to crypto assets, blockchain, and other fintech solutions that may pose risks to investors and market integrity.
Special Attention to Crypto Assets and Emerging Fintech Solutions
The SEC’s fiscal plan acknowledges the rapid growth of investments in crypto assets and associated services, along with the emergence of fintech solutions such as mobile applications from broker-dealers and automated investment advice platforms. The Division aims to oversee and conduct examinations of registrants engaged in activities involving crypto assets or related products to ensure compliance with industry standards.
- Registrants’ standards of conduct, especially when advising retail customers and clients, will be closely examined.
- Compliance practices, including reviews of crypto asset wallets, custody practices, Bank Secrecy Act (BSA) compliance, and valuation procedures, will be assessed.
The SEC has set a compliance deadline of May 28, 2024 for recently adopted rules that shorten the standard settlement cycle for most broker-dealer transactions to one business day after the trade. This move aims to enhance market efficiency and reduce counterparty risk.
A Nuanced Approach to Cryptocurrency Regulation
The SEC’s approach to cryptocurrency regulation in 2023 demonstrated a nuanced strategy, balancing caution and firm enforcement. An example of this was the SEC’s dealing with Grayscale’s Bitcoin Trust’s conversion into an Exchange Traded Fund (ETF). While the SEC initially refused Grayscale’s application, it refrained from appealing the decision, indicating a potential openness to the establishment of the first Bitcoin ETF in the U.S.
However, SEC Chair Gary Gensler’s recent comments suggest a more stringent attitude toward crypto platforms. Gensler criticized companies in the digital asset space for mismanaging customer assets, highlighting ongoing concerns about operational standards in the crypto industry. Additionally, the SEC has intensified its enforcement actions against unregistered crypto platforms, potentially prompting them to consider relocating overseas.
Aside from crypto assets, the SEC will also assess the technological risks associated with the use of blockchain and distributed ledger technology. The Division will evaluate compliance policies, accurate disclosures, and security risks pertaining to crypto asset securities.
As the SEC prepares to implement its comprehensive 2024 fiscal plan, it draws valuable lessons from its actions in 2023. These developments provide insights into the future of crypto regulations, showcasing the agency’s efforts to adapt to the rapid pace of technological change.
