Alan Halfenger is a Managing Director in Treliant’s New York office. A former Chief Compliance Officer from the banking, securities, and investment management industry with experience in securities/brokerage, wealth management, private banking, and asset management. Alan advises clients on compliance program development, regulatory risks related to global securities and commodities,…
- Source: sec.gov
Treliant works with clients to address the issues raised in the risk alert enabling them to avoid the exam issues and enforcement costs. Here’s how we can help:
- As a leader in the crypto and FinTech space, Treliant is able to deploy experienced industry professionals to conduct new business reviews and crypto regulatory readiness reviews;
- Our team of ex-regulators conduct a large number of mock reviews and annual examinations for investment advisers, private funds and broker dealers. These reviews focus on identifying weaknesses in the compliance, risk and infrastructure, as well as recommending practical enhancements and improvement;
- Conducting banking and AML compliance programs in support of FinTech and crypto trading/banking;
- Cybersecurity and due diligence of counterparties and vendors; and
- Working with CCOs on the development of compliance programs, whether as part of a start-up or a large well-established firm is a core skillset for our team of ex-CCOs.
Risk Alert Highlights:
Last week on February 26, 2021, the Securities and Exchange Commission (SEC) Division of Examination issued a Risk Alert documenting findings and observations from recent examinations of Registered Investment Advisers (RIAs), Broker-Dealers (BDs), Transfer Agents (TAs) and National Securities Exchanges (Exchanges) related to the offer, sale, and trading of digital assets and Digital Asset Securities, as well as the related risks of distributed ledger technology.
While the article is far from the forward-looking regulatory roadmap and guidance many in the industry may be looking for, it did provide a number of specific issues that must be addressed by regulated entities participating in these instruments. Additionally, the SEC is trying to define these instruments, their underlying risks, and a core set of characteristics, which is a necessary step toward clarity, guidance, and eventual rulemaking. Specific areas of concern raised in the risk alert are as follows:
For RIAs: The Division of Examination highlighted the following issues:
- Portfolio Management and asset related risks;
- Books and Records;
- Operations and Custody;
- Client Risk and Conflict Disclaimers;
- Valuation/Pricing; and
- Registration issues.
For the BD entities, they also focused on the following:
- Safekeeping/Custody Operations;
- Anti-Money Laundering;
- Offering Issues;
- Disclosures of Conflicts of Interest; and
- Outside Business Activities (Selling Away).
The SEC is very clear in their guidance to the industry and will be examining these issues in upcoming examinations and sweeps. If they are going to engage in cryptocurrency activities, registered firms must do the following:
- Conduct a thorough analysis of the risks of this business;
- Modify their oversight, compliance and supervisory programs;
- Update risk documentation, policies, and procedures;
- Enhance operational and technical infrastructure; and
- Employee risk and product training and client disclosures.