The U.S. Securities and Exchange Commission (SEC) has outlined its key focus areas for fiscal year 2024, with a strong emphasis on examining market risks and participants. These priorities, as published by the SEC’s Division of Examinations for SEC crypto exam, place a heightened scrutiny on crypto assets, blockchain technology, and other emerging financial technologies.
Focus on Emerging Threats
The standards set forth by the SEC’s Division of Examinations are designed to prioritize areas of risk that present emerging threats to investors and the integrity of the financial market.
Examination of Digital Assets and Blockchain
Moreover, within the realm of digital assets and blockchain technology, the Division of Examinations will continue to conduct thorough examinations of registrants. These examinations will specifically target activities related to the offer, sale, recommendation, advice, and trading of crypto assets and related products.
This examination has a dual focus:
- The Division of Examinations will assess registrants for their standards of conduct when recommending or advising customers and clients on crypto assets, with a primary emphasis on their initial and continuous understanding of these products.
- Registrants are expected to routinely review, update, and enhance their compliance practices to align with evolving regulations.
Attention to New Technological Products and Services
The Division of Examinations has expressed a keen interest in broker-dealers, along with advisors offering new technological products and services, particularly automated investment advice. This also highlights the SEC’s concerns regarding the potential risks associated with emerging technologies and alternative data sources.
Recent Tensions and Regulatory Clarity
These developments also unfold in context of recent tensions between the SEC and the House Committee on Oversight and Accountability. Furthermore, SEC Chair Gary Gensler faced the prospect of compulsory process if the agency did not comply with requests from Committee.
Gensler, however, has consistently rejected calls for ‘regulatory clarity’ in his speeches on crypto regulation. He also maintains that existing securities laws are sufficient to govern digital assets.
In a June speech, Gensler stressed that the labels used to categorize an investment contract do not change its fundamental nature, asserting that “the economic realities of a product—not the labels— determine whether it is a security under the securities laws.”