US SEC to Crack Down on Companies Offering or Giving Crypto Advice3-min read

US SEC Will Increase Scrutiny of Companies Offering Crypto Advice

The US Securities and Exchange Commission (SEC) is cracking down on crypto on all fronts. Recently, it proclaimed that staking is now considered an unregistered security. Now, the US securities watchdog is also putting crypto brokers and investment advisors who offer or give crypto advice under the scope.

US SEC Publishes Its Priorities for 2023

According to a new statement published on February 7th, the US SEC’s Division of Examinations outlined its priorities for 2023. The document suggests that advisers and brokers who deal with digital assets will have to be extra careful moving forward when it comes to offering their services. This includes offering, selling, or making recommendations when it comes to cryptocurrency investments.

The statement further says that all SEC-registered advisers and brokers will be watched closely moving forward, to see whether they follow their standards of care when making referrals and recommendations. Essentially, the SEC wants to ensure that the companies offering crypto advice are offering good advice, and not just any advice.

Moving forward, the SEC also intends to examine whether these companies and other entities tend to regularly review and update their procedures with the changes in the crypto industry, regarding compliance, risk management, and disclosure.

Previously, the US securities watchdog released a relatively similar announcement back in 2022. Its priorities in 2023, however, seem to be focused on standards and practices involving care on behalf of brokers. In other words, the regulator will not focus so much on their consideration of unique risks involving emerging financial technologies, that it focused on back in 2022.

Financial Advisors Cannot Offer Custody Services Without Proper Qualifications

This new statement, however, comes about two weeks after reports that said that the SEC has been investigating registered crypto investment advisers who could be offering digital asset custody without actual qualifications or appropriate licensing to do so. Allegedly, the regulator has been conducting an investigation for months. However, after the collapse and bankruptcy of FTX and other major crypto companies — which had huge consequences on the state of the crypto industry — the regulator is doubling down on this aspect of crypto.

According to the current laws, all investment advisory companies have to be qualified to offer custody services to their clients if they wish to do so. Furthermore, they must be in complete compliance with all custodial safeguards, as described in the Investment Advisers Act of 1940. While this is a very old Act at this point, it still applies, even to a modern aspect of the financial industry, such as digital currencies.

As for the SEC itself, it noted that its priorities reflect the changing landscape and associated risks in the securities markets. The regulator added that the priorities are the product of a risk-based approach to examination selection that balances its resources across a diverse registrant base.