The Financial Industry Regulatory Authority (FINRA), a key self-regulatory organization in the United States, recently published its 2024 Annual Regulatory Oversight Report. This report is of particular interest due to its inclusion of a dedicated section on crypto assets for the first time, reflecting the growing significance of cryptocurrencies in the financial landscape. This section is aimed at guiding member firms engaged in or planning to engage in crypto-related activities to adhere to compliance standards and SEC regulations.
Crypto Asset Developments
FINRA’s Membership Application Program (MAP) aligns with the SEC’s guidelines, focusing on evaluating member firms’ business plans in the realm of crypto asset securities. This includes assessing financial responsibility and adherence to customer protection rules. The report provides guidance for firms contemplating engaging in crypto asset-related activities, highlighting the importance of due diligence and compliance with applicable regulations.
Advertised Volume and Cybersecurity
The report touches on topics such as inflated trade volumes and unreasonable supervision. It also emphasizes the increasing variety, frequency, and sophistication of cybersecurity incidents. Firms are guided on identifying, preventing, and mitigating such incidents.
Anti-Money Laundering and Fraud
Member firms are required to develop and implement written Anti-Money Laundering (AML) programs. The report outlines the necessary steps to ensure compliance with these programs, along with the need for robust fraud and sanctions screening processes.
Retail Communications and Compliance
Retail communications involving crypto assets are noted for having a significantly higher non-compliance rate compared to other products. The report suggests that firms establish written policies, procedures, and controls related to crypto asset activities conducted by the firm and its associated persons.
Potential Implications of Pending Supreme Court Decision
The report mentions a pending Supreme Court decision that could impact regulatory practices involving in-house judges, which could have implications for FINRA’s regulatory mechanisms.
Implications for the Industry
The inclusion of a crypto assets section in FINRA’s annual report is a testament to the organization’s responsiveness to the dynamic nature of financial markets. By setting compliance standards and providing detailed guidance, FINRA is equipping its members to navigate the complex and rapidly evolving crypto sector. This proactive approach is crucial for maintaining market integrity and protecting investor interests in the face of new financial technologies and trends.
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