SEC's 2024 Examination Priorities: Crypto Dealer-Brokers Under Scrutiny

On October 16, the US Securities and Exchange Commission (SEC) unveiled its 2024 examination priorities report. For years, the SEC's Division of Examinations has been releasing such reports, offering insights into the risks that will be a focal point of its regulatory oversight. Notably, this year's report singles out crypto dealer-brokers for special attention.

In the previous year, the SEC's Examinations Division expanded its purview by establishing specialized units dedicated to overseeing the crypto, fintech, artificial intelligence, and cybersecurity sectors, as detailed in the report. The emphasis on regulating broker-dealers and advisers operating in the crypto space remains robust.

The SEC's focus also extends to registrants delving into innovative solutions, such as online trading platforms, automated investment tools, and AI-driven algorithms. Examinations will scrutinize how registrants align with conduct standards, particularly in their dealings with customers, ensuring a comprehensive understanding of the products offered. The report places specific emphasis on the well-being of senior investors and the safeguarding of retirement assets.

Another key area of examination is the adherence of registrants to the latest advisories. Of particular note are the "custody rules as per the Advisers Act," which are highlighted in the report. The evaluations will also encompass risks associated with the adoption of blockchain and other distributed ledger technologies.

The report uniquely mentions examinations of transfer agents, especially those serving crypto asset securities issuers or integrating emerging technologies into their operations, as subjects of scrutiny.

Traditionally, the Division of Examinations has issued examination updates, but this marks the first instance of such an announcement coinciding with the start of a fiscal year.

Division Director Richard Best emphasized that publicizing examination priorities enhances the transparency of the examination process. This move is aimed at encouraging firms to focus their compliance efforts on areas posing heightened risks, especially to retail investors.

The SEC clarified that the determination of examination priorities is based on feedback collected in the previous year, incorporating inputs from the examination team, investors, and industry stakeholders.