On July 6, 2018, FINRA published Regulatory Notice 18-20 (the Notice) as part of its continuing efforts to ascertain the extent of FINRA member firm involvement in “digital assets,” including cryptocurrencies and other virtual coins and tokens. FINRA cited the significant market growth for digital assets, especially among retail investors, as the reason behind the Notice as well as recent incidents of fraud and securities law violations involving these products and the platforms on which they trade.
Overall, the Notice provided a message that was twofold: First, to encourage member firms to promptly notify FINRA in writing if the firm, or its associated persons or affiliates, engages in or intends to engage in any activities related to digital assets.2 Second, through July 31, 2019, to encourage firms to keep their Regulatory Coordinator abreast of any changes in the event the firm, or any of its associated persons or affiliates, determines to engage in activities related to digital assets, including digital assets that are non-securities. If a FINRA member firm already has submitted a continuing membership application (CMA) regarding its involvement in activities related to digital assets, or provided notification to its Regulatory Coordinator in response to a direct request, or by way of the 2018 Risk Control Assessment (RCA) Survey, then the firm need not provide additional notice unless a change has occurred.
The Notice identifies several examples of activities of interest to FINRA if undertaken (or planned) by a member firm, its associated persons or affiliates, including, but not limited to: (1) purchases, sales, or execution of transactions in digital assets; (2) purchases, sales or executions of transactions in a pooled fund investing in digital assets; (3) creation of, management of, or provision of advisory services for, a pooled fund related to digital assets; (4) derivative transactions tied to digital assets; (5) participation in initial or secondary offerings of digital assets (such as initial coin offerings or “ICOs”); (6) creation or management of a platform for secondary trading of digital assets; (7) custody of digital assets; (8) acceptance of cryptocurrencies from customers; and (9) clearing or settlement services for, or other activities involving, cryptocurrencies and other virtual coins and tokens.
In addition to the foregoing activities, FINRA requests prompt notification of activities subject to FINRA Rules 3270 and 3280—the rules relating to outside business activities of registered persons and private securities transactions of associated persons, respectively.3
The Notice is available at: http://www.finra.org/industry/notices/18-20