On Tuesday, the Division of Examinations of the Securities and Exchange Commission (SEC) announced the list of topics that are a priority for this year. The regulator named “crypto assets” and other evolving technologies as one of the top priorities for this year.
In the division’s 2023 to-do list, the SEC says that it intends to conduct tests of broker-deals and RIAs using financial technologies or other new practices to cope with the demands of compliance and marketing and cater to investors’ requirements.
The division will conduct examinations of broker-dealers and RIAs that are using emerging financial technologies or employing new practices, including technological and on-line solutions to meet the demands of compliance and marketing and to service investor accounts.
Sources reveal that the examinations and assessment mentioned in the regulator’s list will focus on whether firms dealing with digital assets “are meeting and following their respective standards of care when making recommendations, referrals, or providing investment advice.”
In addition, it will also assess whether they continuously review their compliance, disclosure, and risk management practices. The division of examinations would also focus on ensuring that investment advisers have adhered to the marketing rule implemented last year.
Apparently, the marketing rule restricts testimonials and recommendations in promoting investments. The SEC has pursued high-profile cases related to celebrity endorsements of digital assets.
Similar agendas that could apply to firms dealing with digital assets include examinations of the performance of investment advisers’ fiduciary duty and a review of cybersecurity practices by broker-dealers, investment advisers, and other registrants. The fiduciary piece will include whether they properly assess risk, how they perform custody of assets, and how advisers manage conflicts of interest.
Gary Gensler, SEC chair, said that the division would protect investors given the evolving markets.
In a time of growing markets, evolving technologies, and new forms of risk, our Division of Examinations continues to protect investors. In executing against the 2023 priorities, the division will help ensure compliance with the federal securities laws and rules.
While there has been strife between the two major regulators in the US regarding crypto regulation, SEC has been particularly active in the matter. Todayq News reported in January that the SEC brought a record number of crypto-related enforcement actions last year.
Figures from 2022 have been about 50% up from 2021. In 2022, SEC had about 30 crypto-related enforcement actions, close to 2020, when it brought 29 such actions. The firm stated that the most common allegations amongst these actions were fraud and unregistered securities.