On February 26, 2021, the Division of Examinations (Division) of the US Securities and Exchange Commission (SEC) published a Risk Alert that provides guidance on the Division’s observations related to Digital Asset Securities and areas on which the Division will focus in future examinations.
The Risk Alert reminds investment managers, broker-dealers, national securities exchanges, and transfer agents that although there are risks and features unique to digital assets that are securities (Digital Asset Securities) and the distributed ledger technology used by the digital assets themselves, existing rules apply. Market participants should ensure compliance practices are enhanced to meet the challenges presented by these products.
The Division included many of these focus areas in its 2021 Exam Priorities.
The Risk Alert puts market participants on notice of specific issues the Division observed in relation to Digital Asset Securities. The publication identifies issues familiar to market participants such as registration, disclosure, anti-money laundering, pricing, safekeeping, reporting, and record keeping, and describes how the Division sees these themes are presenting in the digital asset realm.
Registered transfer agents servicing Digital Asset Securities should ensure they are processing trades in compliance with transfer agent rules, specifically in cases that involve using distributed ledgers in the trade process.
Market participants should proactively assess their exposure to Digital Asset Securities, both in current operations and any planned strategic changes, and conduct an analysis of the areas of focus the Division has indicated will be scrutinized. The market participant should document the assessment, including rationale for decisions and any action plans for issues identified or areas in need of further scrutiny. Action plans should have appropriate timelines and responsible owners, and senior management should be apprised on progress. The assessment and any corresponding action plans should form the basis of the conversation with Division staff on the topic of the participant’s compliance program with respect to Digital Asset Securities.
Guidehouse can help market participants assess their compliance programs to identify and enhance operations, policies, procedures, controls, and technology as needed. Guidehouse has been at the forefront working with market participants as new products and technologies become increasingly widespread. Its areas of relevant expertise include the following:
Guidehouse is well-equipped to make an individualized assessment of your unique circumstances and offers innovative advice and solutions for responding to heightened regulatory requirements.
Partner, Financial Services
Risk, Regulatory, and Compliance
UK- +44 0 7387 023075 | US - +1.202.481.8398