Crypto Space Is at Top of Sec’s Compliance Monitoring List

The crypto space, with all its quirks, risks, and opportunities, has made it to the top of the SEC’s compliance monitoring list.

The U.S. Securities and Exchange Commission’s chair struck a positive note about cryptocurrencies on Tuesday when he assured members of Congress that his agency is being proactive in monitoring the space.

So much so was his message reassuring, as well as that from J. Christopher Giancarlo, the chair of the U.S. Commodity Futures Trading Commission, that Bitcoin’s price volatility eased.

Then, on Wednesday, the SEC’s Office of Compliance Inspections and Examinations (OCIE) took another step in proving its commitment to keeping the crypto space in check. It announced its 2018 examination priorities, and at the top of the list were cryptocurrencies and initial coin offerings.

Let’s discuss.

What’s the point?

The OCIE publishes its exam priorities every year to:

  • improve compliance
  • prevent fraud
  • monitor risk
  • inform policy

Cryptos tend to fit all of the above as far as areas of concern. This is why monitoring them has been made a top priority.

About this priority list, the SEC’s chair Jay Clayton pointed out that the OCIE is known for having a “keen eye toward asset verification, market infrastructure, and duties owed to retail investors.”

Recognizing how important the crypto space has become in terms of its need to be monitored, the OCIE’s Director Pete Driscoll said the following:

”As the markets continually evolve and the products and services available to investors adapt, OCIE remains committed in its risk-based examination program to prioritizing the interests of retail investors and examining those aspects of securities firms posing risks to investors and the proper functioning of our capital markets.”

What’s being examined?

This year, OCIE's examination priorities have been broken down into five categories: 

  • compliance and risks in critical market infrastructure
  • matters of importance to retail investors, including seniors and those saving for retirement
  • FINRA and MSRB
  • cybersecurity
  • anti-money laundering programs

During that much-discussed Congressional hearing Tuesday, some of these issues were talking points as they relate to cryptocurrencies. These were mainly related to cybersecurity and anti-money laundering.

Both Clayton and Giancarlo agreed that oversight was key to making sure bad actors don’t grow prevalent so as to give the space, including ICOs, a bad reputation.

The pair also expressed their understanding of the importance of weeding out the bad actors who commit fraudulent acts without stifling innovation.

For its part, the SEC’s OCIE has developed several ways to continue its monitoring of the growth of cryptocurrencies and ICOs. They include examining registrants involved in the sale of ICOs to ensure that investors receive adequate disclosures about the risks associated with these investments.