SEC’s Division of Examinations issues Risk Alert on digital assets

The Safety and Trade Fee’s Division of Examinations printed on Friday a blueprint for funding managers and establishments on how the division will examine the dealing with of crypto property, or “digital asset securities,” shifting ahead. 

The division (previously the Workplace of Compliance Inspections and Examinations) is the second-largest wing of the SEC and is tasked with overseeing securities trade gamers to make sure regulatory compliance.

Focused towards funding advisors, broker-dealers, exchanges and switch brokers, this Threat Alert supplied a broad record of particular procedural, bookkeeping and advisory steps the division shall be anticipating from securities firms in future examinations.

“As extra securities trade members search to interact in digital asset-related actions, this Threat Alert offers transparency about areas of focus for the Division’s future examinations,” the workplace wrote.

Funding advisors ought to concentrate on dangers related to forks and airdrops, and the Division shall be reviewing advisors’ “success of their fiduciary responsibility with respect to funding recommendation,” a remark presumably associated to disclosing the dangers related to crypto.

Funding custodians, in the meantime, ought to have “continuity plans” in conditions the place key executives have entry to non-public keys, and the division shall be inspecting personal key administration going ahead.

Among the many most thorough sections is steerage round Anti-Cash Laundering issues for broker-dealers, which the division appeared to indicate has been a degree of failure for some establishments.

“Sure pseudonymous facets of distributed ledger expertise current distinctive challenges to the sturdy implementation of an AML program,” the division wrote.

“The workers has noticed broker-dealer AML applications that haven’t persistently addressed or applied routine searches or, to the extent they applied routine searches, haven’t up to date these searches to test in opposition to the Specifically Designated Nationals record maintained by the Workplace of International Property Management (“OFAC”) on the U.S. Division of the Treasury.”

The Threat Alert additionally famous “insufficient” AML procedures and documentation, noting that it will be inspecting for “submitting suspicious exercise studies and performing buyer due diligence.”