Compliance officers should jump over regulators in giving crypto trading instructions to their employees

Digital assets and cryptocurrencies have further exposed the adversarial relationship between technological innovation and regulatory regulation. As crypto innovation moves at lightning speed, offering huge opportunities for growth and wealth creation, regulation for the broader industry and regulators in certain wirehouses, broker-dealers and RIAs have moved at a slower, more deliberative pace.

Amy Kadomatsu

This means that employees who own and trade these funds lack the knowledge needed to comply with their companies’ professional ethics. At the same time, customer officers are avoiding developing complex protocols that do not comply with future rules – they can be established as the crypto market continues. Very flexible.

Today, there are no direct cryptocurrency market regulations. But as they continue to gain popularity among financial services industry workers, even as these assets are experiencing a significant decline in valuation, several regulatory agencies are likely to issue regulations that impact the growth of the digital asset ecosystem.

The SEC may direct most of this process, by Latest announcements From Chairman Gary Gensler List Protection of consumers and investors from cryptocurrency scams. But the Commodity Futures Trading Commission, the Financial Industry Regulatory Authority and the Financial Stability Board may have meaningful roles. The blind nature of moving crypto assets can bring law enforcement and tax agencies into the equation.

Until regulators take action, financial services firms dealing with traditional employee trading activities must develop certain protocols related to cryptocurrencies. Compliance officers agree: In November 2021, 83 percent of compliance experts surveyed by ComlySci said monitoring the use of cryptocurrencies should be a priority. Interestingly, only 53 percent of the same survey pool held that opinion in August.

Add to this the fact that in January 2022, 30% of surveyed organizations required employees to verify cryptocurrency accounts and wallets, and only 21% required employees to preempt any cryptocurrency transactions.

Crypto by any other name
With thousands of known cryptocurrencies in circulation around the world, perhaps U.S. regulators can create a framework that treats these assets more holistically than on their individual properties. Therefore, a sound interim compliance program must begin by recognizing two major classes of digital assets: established and emerging coins.

Bitcoin and ethereum are examples. Well-proven cryptocurrency coins Market-specific prices. As such, they are similar to goods and can be regulated as such. Small, emerging coins that include “meme coins” are cryptocurrency coins used by companies or individuals to generate revenue or, in some cases, for entertainment. These digital assets are tied to a company or organization and function similarly to securities. By classifying cryptocurrencies in one of these two categories, companies can use existing compliance policies to include the use of these digital coins in the employee portfolio (although if the technology is not included in the current reporting programs, it can be a challenge to monitor employee business activity).

Using this comprehensive framework allows companies to leverage existing compliance policies for cryptocurrencies and lay the groundwork for future regulation. Although regulators may not end up designing digital asset regulations this way, taking these steps now will foster a culture of compliance in the dynamic financial services space.

Prepare for the unknown
While cryptocurrencies are volatile, and debates continue about their value and impact on the financial industry, they are here to stay.

Regulators have already started internal proceedings and have included digital assets and cryptocurrency cases in them. 2022 exam requirementsTherefore, forward-thinking financial services institutions must develop actionable compliance protocols to address these evolving regulatory burdens on assets.

Applying today’s regulatory infrastructure to these assets not only enables organizations to move forward for success, but also demonstrates preparedness and readiness to comply with regulatory requirements in the future.


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