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Will FINRA try to regulate crypto?

by | Jan 27, 2022 | Securities Litigation

The Financial Industry Regulatory Authority (FINRA) is prepping to release its 2022 examination priorities. Some notable priorities thus far include how firms are engaging social media influencers to help market their brands, a tightening of rules around options accounts and how firms manage the risk connected to complex products and trading strategies.

But one area FINRA has already stated it will prioritize is a need to enhance its disclosure documents regarding these digital assets. Since these assets span multiple regulatory bodies, it is reasonable for investors and brokers to face some confusion. FINRA states it aims to provide clarity through enhanced disclosure documents.

Although it can place requirements on what brokers disclose about the assets, FINRA does not regulate crypto itself. Lawmakers who pass new rules or the United States Securities and Exchange Commission (SEC) regulate the asset itself. Instead, FINRA is looking to control how brokers explain this asset to their investors.

How will FINRA attempt to regulate brokers’ sales of digital assets?

The regulatory agency stated it would focus on advertising and disclosure requirements when it comes its member firms selling crypto assets. Use of crypto currency like Bitcoin and other digital assets is growing in popularity for investors looking to diversify their wealth management plans. However, this market is highly volatile and risky. Although FINRA has provided guidance documents and alerts to help mitigate the risk, FINRA believes more action is necessary to protect investors.

Notably, FINRA CEO Robert Cook was clear to stress the importance of flexibility, as rules regarding crypto assets will likely need to be poised to evolve to better ensure adequate protection.

How will this impact FINRA’s many member firms?

Cook also explained that FINRA would not rush to put out a set of regulations, but instead would release an “early-stage, concept release type of notice.” If true, this could allow brokers the chance to review the regulations before they actually go into effect and possibly recommend changes to better ensure the regulations are not too stifling.

Commercial LitigationSecurities LitigationWill FINRA try to regulate crypto?
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