SEC To Step Up Probe On Firms And Brokers Pitching Crypto

The Securities and Exchange Commission is in charge of regulating the United States’ securities markets. In the context of cryptocurrencies, the SEC has taken a cautious approach to regulation, classifying the majority of cryptocurrencies as securities and subjecting them to federal rules.

The U.S. government agency released its yearly assessment goals regarding how it will keep watch of developing risks, including the management of crypto assets as a focal point.

A statement issued by the Division of Examinations on February 7 stated its goals for 2023, indicating that brokers and advisers dealing with cryptocurrency will need to be particularly vigilant when offering, selling, or recommending digital assets.

SEC Ramps Up Inquiry On Entities Dealing In Crypto

The regulator has taken a prudent approach to regulating cryptocurrencies, designating the majority of them as securities and applying federal regulations to their sale and trading.

The examinations unit intends to evaluate broker-dealers and investment advisors that utilize innovative financial technology, such as cryptocurrency.

Image: FXVNPro

According a press statement, examiners of the agency will evaluate whether these intermediaries adhere to the required “standards of care” for investors and if they routinely review and update their risk management systems.

This declaration was similar to the commission’s goals from 2022, in which it asked companies that issue securities to disclose their exposure and risk to the cryptocurrency market to investors.

The Investment Advisers Act of 1940 stipulates that investment counseling entities must be qualified to offer custody services to clients and conform with custodial precautions.

SEC Chairman, Gary Gensler. Image: Business 2 Community

Safeguarding Investors? 

Gary Gensler, as chairman of the SEC, has long considered the majority of cryptocurrencies to be securities susceptible to inspection and regulation.

Securities are financial items that represent asset ownership, a debt, or the right to asset ownership. In simple words, securities are marketable financial products whose value fluctuates based on supply and demand.

In a period of expanding markets, emerging technologies, and new types of risk, the agency’s examination division’s top priority is to safeguard investors, Gensler added.

The annual assessment by the US regulator is carried out nearly two months after FTX, one of the world’s biggest cryptocurrency exchanges, filed for bankruptcy. Over 100,000 customers were impacted by the exchange’s downfall.

The objectives chosen, according to Richard R. Best, director of the Division of Examinations, reflect a “changing terrain,” as well as the risks that come from it.

Best stated that by staying abreast of the most recent market trends, the agency would be better positioned to anticipate possible risks to investors and markets.

Crypto total market cap at $1 trillion on the daily chart | Chart: TradingView.com

While some would like the Commodity Futures Trading Commission (CFTC) to regulate cryptocurrencies in the United States, Senator Elizabeth Warren of Massachusetts said that SEC guidelines were the best approach.

The CFTC considers cryptocurrencies to be commodities and has authority over futures and options trading using them.

In addition, enforcement actions have been taken against companies and individuals for violations of federal commodities rules in the digital currency market.

Featured image from Pixabay