United States: FINRA Encourages Member Firms To Provide Notice If They Engage In Activities Related To Digital Assets

Last Updated: July 30 2019
Article by Edward J. Johnsen, Mary Dunbar, John Grady and Bradley E. Phipps

On July 18, 2019, FINRA issued Regulatory Notice 19-24, encouraging its member firms to keep their Regulatory Coordinators abreast of activities related to digital assets. The request for notice of such activities continues until July 31, 2020. Noting that FINRA and other regulators are continuing to provide guidance regarding the regulatory challenges presented by digital assets (including the recent SEC/FINRA Joint Statement on Broker-Dealer Custody of Digital Asset Securities), FINRA believes it is important to maintain communication with its members on this issue.

Regulatory Notice 19-24 reminds FINRA members of the steps it has taken to engage with them regarding their activities relating to digital assets, including Regulatory Notice 18-20 which encouraged each firm to keep its Regulatory Coordinator informed if the firm or its associated persons or affiliates engage or intend to engage in digital asset securities activities, as well activities related to digital assets that are not securities. That earlier notice requested firms to provide updates until July 31, 2019, and the new notice encourages them to continue doing so for another year.

Specifically, FINRA requests firms to promptly notify their Regulatory Coordinators in writing or via email if they, their associated persons or their affiliates intend to or currently engage in activities related to digital assets, including those by covered by FINRA's Outside Business Activities and Private Securities Transactions rules. Such activities include:

  • purchases, sales or executions of transactions in digital assets or in pooled funds investing in digital assets
  • creation of, management of, or provision of advisory services for pooled funds related to digital assets

  • purchases, sales or executions of transactions in derivatives tied to digital assets

  • participating in initial or secondary offerings of digital assets

  • creating or managing platforms for secondary trading of digital assets

  • custody and similar arrangements related to digital assets

  • accepting cryptocurrencies (such as bitcoin) from customers

  • cryptocurrency mining

  • recommending, soliciting or accepting orders in cryptocurrencies and other virtual coins and tokens

  • displaying indications of interest or quotations in cryptocurrencies and other virtual coins and tokens

  • providing or facilitating clearance and settlement services for cryptocurrencies and other virtual coins and tokens

  • recording cryptocurrencies and other virtual coins and tokens using distributed ledger technology or

  • any other use of blockchain technology.

FINRA notes that if a firm already has submitted a continuing membership application related to digital assets activities, or has otherwise provided such information to FINRA, there is no need for additional notice unless there is a change in the reported information.

If you would like to learn more about FINRA's activities with respect to digital assets and what they mean for your business, please contact the authors or any member of the Financial Services team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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