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Per the 2024 exam guide, the SEC intends to scrutinize cryptocurrency dealers, brokers, and transfer agents.

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The United States Securities and Exchange Commission (SEC) shapes its annual examination priorities by amalgamating input from examiners, investors, and the industry. On October 16, the SEC unveiled its 2024 Examination Priorities Report, a culmination of insights from the SEC’s Division of Examinations, which has consistently published such reports for more than a decade. These reports serve as a beacon for registrants, signaling the imminent risks that will be under the SEC’s scrutiny. Notably, this year’s report casts a spotlight on the cryptocurrency dealer-brokers, among other entities, delivering a wake-up call.

The SEC’s Examinations Division took an evolutionary leap in 2023, enhancing its capabilities and forming specialized teams across its various programs. This strategic move aimed to tackle the challenges posed by the realms of cryptocurrency, financial technology, artificial intelligence, and cybersecurity. The report underscores the SEC’s continuous monitoring of broker-dealers and advisors operating within the cryptocurrency landscape.

The Division was particularly focused on registrants embracing novel practices, especially those centered around technological and online solutions that cater to the dual demands of compliance and marketing. This encompasses tools such as automated investment platforms, artificial intelligence, and trading algorithms or platforms. The examinations are poised to evaluate the extent to which registrants adhere to the standards of customer advice and their grasp of the products they offer. Notably, the report singles out older investors and retirement assets for special attention, ensuring they are well-served. Furthermore, compliance with the latest guidance is paramount, with a specific mention of “custody requirements under the Advisers Act.” The report also underscores the evaluation of risks associated with the utilization of blockchain and distributed ledger technology.

Separately, examinations will scrutinize transfer agents involved in servicing cryptocurrency asset securities issuers or those deploying emerging technologies within their operations.

An interesting development is that, for the first time, the Division of Examinations has released this comprehensive examination update at the outset of the new fiscal year. Division Director Richard Best emphasized the importance of this transparency, stating, “Continuing to make our examination priorities public increases transparency into the examination program and encourages firms to focus their compliance and surveillance efforts on areas of potentially heightened risk to retail investors.”

According to the SEC, the determination of examination priorities is a result of feedback from the examination staff in the preceding year, as well as input from investors, industry groups, and similar sources.

Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Crypto is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Crypto market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.