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 the inclusion of a dedicated section on crypto assets for the first time, reflecting the growing importance of cryptocurrencies in the financial landscape. This section is intended to guide member firms engaged in or planning to engage in crypto-related activities to adhere to SEC compliance standards and regulations.
Development of crypto assets
FINRA’s Membership Application Program (MAP) complies with SEC guidelines, focusing on evaluating the business plans of member firms in the crypto-asset securities space. This includes assessing financial responsibility and compliance with customer protection rules. The report provides guidance for businesses considering engaging in activities related to crypto assets, emphasizing the importance of due diligence and compliance with applicable regulations.
Advertised volume and cyber security
The report touches on topics such as inflated trade volumes and unreasonable oversight. It also highlights the increasing variety, frequency and complexity of cyber security incidents. Companies are targeting to identify, prevent and mitigate such incidents.
Fight against money laundering and fraud
Member companies are required to develop and implement written anti-money laundering measures (AML) programs. The report outlines the necessary steps to ensure compliance with these programs, along with the need for robust fraud and penalty screening processes.
Retail Communications and Compliance
Retail communications involving crypto assets are known to have a significantly higher rate of non-compliance than other products. The report suggests firms establish written policies, procedures and controls related to crypto asset activities conducted by the firm and its affiliates.
Potential implications of the pending Supreme Court decision
The report mentions a pending Supreme Court decision that could affect regulatory practices involving in-house judges, which could have implications for FINRA’s regulatory mechanisms.
Implications for industry
The inclusion of a section on crypto assets 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 prepares its members to navigate the complex and rapidly evolving crypto sector. This proactive approach is critical to maintaining market integrity and protecting investors’ interests in the face of new financial technologies and trends.
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