SEC and FINRA Joint Statement: Continue to delay the issuance of broker-dealer licenses to encryption companies

The US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) believe that there are still some issues that need to be resolved before the cryptocurrency company becomes a broker-dealer.

In a joint statement issued Monday (July 8) local time, the Office of the General Counsel of the US Securities and Exchange Commission’s Department of Trade and Marketing and the Financial Industry Regulatory Authority considered it in deciding whether to approve digital asset companies (including managed service providers). When becoming a broker-dealer, regulators need to consider more factors because digital assets will be treated as securities under the Securities Investor Protection Act of 1970 (SIPA).

The statement states:

“The broker-dealer must have the ability to comply with all aspects of the Securities Investor Protection Act, as well as the corresponding regulations and specific practices, but these involve securities lost or stolen laws and specific practices in certain digital assets. The situation may be invalid or invalid.”

In the United States, broker-dealers are legitimate registered and regulated entities that are able to buy and sell securities on their own behalf and customers, while some companies want to trade digital assets as securities and for those who cannot hold or buy digital assets directly. Institutional investors provide services.

Although the broker-dealer can prove that he owns the encrypted wallet private key, other entities may not be able to self-certify to meet regulatory requirements, so the US Securities and Exchange Commission and the Financial Industry Regulatory Authority explained in the statement:

“Some encryption companies may not be able to prove whether others have a copy of the private key, and there is no way to prove whether digital asset securities are likely to be transferred without the consent of the broker-dealer.”

The US Securities and Exchange Commission and the Financial Industry Regulatory Authority said that this statement is a response to market participants’ questions. In fact, many encryption companies that apply for broker-dealers have been waiting for months, and some have even waited for more than a year. As a result, it is rumored in the market that the US Securities and Exchange Commission may suspend approval, and others believe that regulators need to reevaluate some of the new issues in designing “cryptocurrency securities” – from the current situation, the US Securities and Exchange Commission and the financial industry The joint statement of the bureau is more inclined to the latter.

It is worth mentioning that the Gemini exchange is the latest encryption company to apply for a broker-dealer license.

Regulators still pay attention to investor protection issues

In addition to the private key issue, the US Securities and Exchange Commission and the Financial Industry Regulatory Authority also analyzed whether digital assets meet the requirements of digital securities in the 1970 Securities Investor Protection Act.

The latest joint statement states that Section 15c3-3 of the US Securities and Exchange Commission rules requires broker-dealers to actually hold a full payment and excess margin from a customer in a well-controlled location, or to maintain their exemption from lien. . In general, the Securities Investor Protection Act of 1970 requires that stored securities must have protection against cancellations or cancellations of errors and unauthorized transactions, and that third-party custodians must hold actual securities.

However, when it comes to digital assets, the use of third party custodians may increase the risk of stolen or lost securities. The US Securities and Exchange Commission and the Financial Industry Regulatory Authority believe that if a security enters an unauthorized address, the broker-dealer will not be able to cancel the transaction, and they state in the joint statement:

“If digital asset securities do not meet the definition of ‘security’ as defined in the Securities Investor Protection Act, once the broker-dealer has problems, the regulatory protection of the Securities Investor Protection Act may not be applicable, and those digital asset securities Someone can only claim unsecured general creditors for the property of the broker-dealer.”

The US Securities and Exchange Commission and the Financial Industry Regulatory Authority also questioned the transaction records and reporting rules, and they wrote in the statement:

“Because of the nature of distributed ledger technology and the characteristics associated with digital asset securities, it may be difficult for broker-dealers to demonstrate the existence of digital asset securities in their regulatory books, records, and financial statements.”

Some digital asset companies are planning to use distributed ledgers with specific functions designed to meet regulators’ requirements for record keeping and storage, although these companies must still consider the nature of blockchain technology and whether it may affect compliance with regulations. Agency reporting rules

Source: Odaily Planet

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