The U.S. Securities and Exchange Commission (SEC) has released its key areas of focus for examining market risks and participants in fiscal year 2024, revealing heightened scrutiny of crypto assets, blockchain and other emerging financial technologies.
Written and published by the SEC’s Division of Examinations, these standards prioritize risk areas that pose emerging threats to investors or to market integrity.
With respect to digital assets and blockchain specifically, the Department will continue to investigate registrants with a focus on offering, selling, recommending, advising on, trading and other activities in crypto assets or related products.
The focus of such an examination of registrants is twofold. First, registrants will be assessed on “respective standards of conduct when recommending or advising customers and clients regarding crypto assets, with an emphasis on an initial and ongoing understanding of the products.” Second, registrants should “routinely review, update and improve their compliance practices.”
The Department emphasized that its focus will be on broker-dealers and advisors offering new technology products and services, with a particular interest in those providing automated investment advice. The agency’s interest in these categories underscores its concerns about the risks of using emerging technologies and alternative data sources.
This comes against the backdrop of recent tensions between the SEC and the House Committee on Oversight and Accountability. Recently, SEC Chairman Gary Gensler was threatened with mandatory proceedings if the agency did not comply with the commission’s oversight requests.
Nevertheless, in speeches on crypto regulation, Gensler has consistently rejected arguments calling for “regulatory clarity.” He has often argued that existing securities laws are adequate to regulate digital assets. In a speech in June, Gensler emphasized that the language used to label an investment contract does not change what it fundamentally is, and that “the economic reality of a product – not its labels – determines whether it is a security under the securities laws.”
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