September 20, 2021

Volume XI, Number 263


September 17, 2021

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FINRA Issues Digital Asset Notice

On July 6, 2018, FINRA issued a regulatory notice encouraging member firms to provide notification if the firms, their associated persons or affiliates were engaging in or planned to engage in any activities related to digital assets such as cryptocurrencies and other virtual coins.

FINRA is requesting each firm provide notification regarding activities in digital assets, including:

  • Outside Business Activities of Registered Persons (Rule 3270),

  • Private Securities Transactions of Associated Persons (Rule 3280),

  • Digital assets that are non-securities, and

  • Members’ trading activities in derivative products tied to digital assets, such as bitcoin futures products offered by the CME and CBOE Futures Exchange.

Other activities that FINRA has identified as “of interest” include:

  • Purchases, sales and executions of transactions in a pooled fund investing in digital assets.

  • Creation, management or provision of advisory services for a pooled fund related to digital assets.

  • Participation in an initial or secondary offering of digital assets (e.g., ICO, pre-ICO).

  • Creation or management of a platform for secondary trading of digital assets.

  • Mining of cryptocurrencies.

  • Recommendation, solicitation or acceptance of orders in cryptocurrencies and other virtual coins and tokens

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

The notice urges members to make prompt disclosures regarding their digital asset activities, and reminds members of their obligations to submit for FINRA approval any material change in a firm’s business operations.

Until July 31, 2019, each firm is encouraged to keep its regulatory coordinator updated if it or its associated persons or affiliates begins or intends to begin engaging in a new type of activity relating to digital assets not previously disclosed.

FINRA cited the rapid market growth, increasing interest from retail investors and investor protection concerns as driving its interest in remaining abreast of the extent of member involvement in digital assets. Furthermore, we note that FINRA is behind the SEC, the CFTC and the PCAOB in addressing the regulatory issues raised by digital assets and probably felt the need to put a marker down in this area.

© 2021 Dinsmore & Shohl LLP. All rights reserved.National Law Review, Volume VIII, Number 207

About this Author

David J. Lavan, Dinsmore, Corporate Litigation Attorney, SEC Registration

David is a partner in the Corporate Department who focuses his practice on all aspects of SEC registration, reporting and compliance. He routinely advises clients on public and private offerings of debt and equity, disclosure matters, corporate governance and accounting issues. As a former government bond broker, David provides clients with unique insights into the financial marketplace, counseling them on transactional and regulatory matters, as well as litigation. He represents both public and private companies, as well as independent board and committee members,...