In its continued efforts to learn what broker-dealers and their employees are doing in the digital asset space, FINRA has effectively reissued a regulatory notice requesting that broker-dealers keep FINRA apprised of their digital asset activities.

 Last July, FINRA issued Regulatory Notice 18-20 where it requested that broker-dealers notify their regulatory coordinators about their and their registered representatives’ digital asset activities. Although not an exhaustive list, some activities FINRA wants information about include the following:

On July 8, the staffs of the Division of Trading and Markets (TM) of the US Securities and Exchange Commission and of the Office of General Counsel of the Financial Industry Regulatory Authority, Inc. issued a joint statement on broker-dealer custody of digital assets that are also securities (Joint Statement). As explained in, and for purposes of, the Joint Statement, a “digital asset” refers to an asset that is issued and transferred using distributed ledger or blockchain technology, including, but not limited to, so-called “virtual currencies,” “coins,” and “tokens.” While all digital assets are not securities under the federal securities laws, a digital asset that is a security is referred to as a “digital asset security” in the Joint Statement. While the Joint Statement provides some insight on the issues under consideration by regulators regarding custody, it does not identify specific circumstances under which a broker-dealer could custody digital asset securities in a manner consistent with the financial responsibility rule applicable to broker-dealers.

The Financial Industry Regulatory Authority (FINRA) has once more filed a rule change with the US Securities and Exchange Commission (SEC) to further delay the effective date of certain changes to its maintenance margin rule for covered agency transactions (e.g., to-be-announced transactions, specified pool transactions, transactions in collateralized mortgage obligations) until March 25, 2020. Final implementation of the rule’s requirements to collect margin on covered agency transactions was scheduled for March 25, 2019, which itself was a delay from a previous compliance date of June 25, 2018. As with the other delays, the new postponement was filed for immediate effectiveness and FINRA, in delaying the rule changes, said that it “is considering, in consultation with industry participants and other regulators, potential amendments to the requirements of [amended Rule 4210].” FINRA further states that it “believes that this is appropriate in the interest of avoiding unnecessary disruption to the Covered Agency Transaction market. Of note, the risk limit determinations of amended Rule 4210 that became effective on December 15, 2016, are not affected by the proposal.” In considering further changes to the Rule 4210 margin collection requirements, FINRA appears to be reacting to industry concerns regarding the competitiveness of certain FINRA members in this market.

In what seems to be déjà vu, broker-dealers can (again) breathe a collective sigh of relief. The Financial Industry Regulatory Authority (FINRA) has filed a rule change with the Securities and Exchange Commission (SEC) to further delay the effective date of certain changes to its maintenance margin rule for Covered Agency Transactions (e.g., to-be-announced transactions, specified pool transactions, transactions in collateralized mortgage obligations) until March 25, 2019. Final implementation of the rule was scheduled for June 25, 2018, which itself was a delay from a previous compliance date. Please read our previous blog post for more information. The new proposal was filed for immediate effectiveness and FINRA, in delaying the rule changes, said that it would be reviewing whether any substantive changes were needed in the rule. Of note, the risk limit determinations of amended Rule 4210 that became effective on December 15, 2016, are not affected by the proposal.

In brief, FINRA announced in August 2016 the adoption of changes to Rule 4210 with respect to the treatment of “Covered Agency Transactions” that would require FINRA members that engage in covered agency transactions with counterparties to make and enforce written risk determinations for each counterparty, and subject to certain exceptions, collect maintenance margin for each counterparty based on the net long or short position by CUSIP. The requirement with respect to risk determinations has been effective since December 15, 2016 and the requirements with respect to maintenance margin were originally scheduled to become effective on December 15, 2017.

The rise of cryptocurrencies and initial coin offerings (ICOs) undoubtedly shows that we live in interesting times that regularly present us with new and innovative products, markets, and opportunities. When the words “new” and “innovative” come to mind, the federal government is usually not part of the conversation. But the US Securities and Exchange Commission (SEC) under Chairman Jay Clayton appears more than willing to challenge that stereotype and to use the SEC’s regulatory and enforcement authority to take on the complex legal and other issues arising from innovative ICOs and other cryptocurrency products. Throughout these efforts, the SEC’s message has been clear and consistent: it will apply established federal securities laws principles and use its regulatory authority over ICOs and other cryptocurrency products expansively when appropriate, and it expects “gatekeepers” to aid in that effort.

Recent SEC Enforcement Actions: Munchee and Plexcorps

Two SEC enforcement actions over the last few weeks represent just the latest attempt by the SEC to get its message across. Most recently, it announced on December 11 a settled enforcement action that halted an ICO by Munchee Inc., a California business that created an iPhone app for reviewing restaurant meals. In a remarkably quick action for the SEC, it brought the case just weeks after Munchee commenced its ICO. The SEC charged Munchee with violating Sections 5(a) and 5(c) of the Securities Act of 1933 (the Securities Act) by conducting an unregistered offering of securities, and is notable because the SEC did not allege that Munchee made any misrepresentations in connection with the offering. Bringing such a standalone unregistered offering case is unusual for the SEC and represents its intention to bring these cases quickly, even in the absence of fraud.

Broker-dealers can breathe a collective sigh of relief. The Financial Industry Regulatory Authority, Inc. (FINRA) has filed a rule change with the Securities and Exchange Commission (SEC) to delay the effective date of certain changes to its maintenance margin rule for Covered Agency Transactions (e.g., to-be-announced transactions, specified pool transactions, transactions in collateralized mortgage obligations) until June 25, 2018.

In brief, in August 2016, FINRA announced the adoption of changes to Rule 4210 with respect to the treatment of “Covered Agency Transactions” that would require FINRA members that engage in covered agency transactions with counterparties to