In a recent news bulletin, the United States Securities and Exchange Commission (SEC) made an explicit recommendation for brokers and advisers regarding crypto investments.
The regulator has used its staff bulletin to target brokers and investment advisers and suggested they use heightened scrutiny when it comes to making crypto recommendations to ensure the risky products are in the best interests of their clients.
Sources reveal that the Thursday staff bulletin highlighted several duties the advisers have to maintain towards customers and it specifically outlined crypto in the list. The stance adds to the agency’s recent focus on the sector.
According to the SEC, there are specific products that are more complex compared to others and have extra risks associated with them. The regulator counted “crypto asset securities” as one such asset. Quoting the regulator:
Certain products are more complex or have additional risk features, which may make it more difficult for firms and their financial professionals to develop an understanding.
Hence, the SEC wants that when brokers or advisers talk to their clients about making a crypto investment, they must ensure clarity. The bulletin clearly stated that the brokers advising first themselves thoroughly understand the products and whether crypto offerings stand relevant for clients’ specific financial situations.
Notably, the bulletin reflects the sentiment of the regulator and more precisely of the staff. The SEC’s unwillingness towards the crypto industry is nothing and only adds to their long-stated examples.
In January, the SEC also proposed a rule that investment advisers registered with the agency must keep clients’ crypto assets with a “qualified custodian.” SEC Chair Gary Gensler said it will almost certainly leave out existing crypto platforms. In the regulator’s view, this usually means keeping the assets with a chartered bank or trust company or a broker-dealer registered with the agency implying the SEC is seeking to effectively sever the advisers from the crypto sector.
Despite the regulatory uncertainty regarding the authority of the crypto regulations in the US, the SEC head has reiterated that all crypto assets are securities except Bitcoin. The regulator has tried to claim its jurisdiction over the crypto sector in numerous instances and has received backlash from industry participants.
In his latest appearance in front of lawmakers, the SEC chief urged Congress to give the regulator more powers to regulate the crypto sector. He also proposed stricter regulations to regulate the sale and exchange of digital assets, along with more clarity on who is responsible for regulating cryptocurrencies. Additionally, he highlighted that the agency should hold intermediaries accountable when it comes to digital asset securities.
The SEC has largely been antagonistic towards crypto assets and has taken steps against the sector in name of investors’ protection. The agency has been on an enforcement spree and intends to intensify it despite the backlash. The SEC has brought under its radar several notable crypto firms like Coinbase, Kraken, and Paxos accusing them of violating federal laws.
In early April, the SEC announced a program called “Free Investor Education Resources” during “Financial Capability Month” which aims to improve Americans’ financial capability. The regulator’s investor awareness resources come with free crypto warnings included. The agency counted on this move to promote the free tools and resources available on its website, investor.gov.