This year, the Securities and Exchange Commission (SEC) has designated crypto assets as a high-risk area for market participants to examine. “In this time of increased market volatility, our priorities have been tailored to focus on emerging issues, such as crypto assets,” an SEC Division of Examinations official said.
The Securities and Exchange Commission’s Division of Examinations published its annual examination priorities Wednesday. Crypto is among the top priorities highlighted in the report this year.
The Division of Examinations conducts the SEC’s National Exam Program, its website details, adding that its “mission is to protect investors, ensure market integrity and support responsible capital formation through risk-focused strategies.”
SEC Chairman Gary Gensler explained that the examination priorities identify key risk areas that the SEC expects registrants — including investment advisers, broker-dealers, self-regulatory organizations, and clearing firms — “to address, manage, and mitigate with vigilance.”
Division of Examinations’ Acting Director Richard Best commented:
In this time of heightened market volatility, our priorities are tailored to focus on emerging issues, such as crypto assets and expanding information security threats, as well as core issues that have been part of the SEC’s mission for decades — such as protecting retail investors.
The Examination Priorities report lists five “significant focus areas,” and “Emerging technologies and crypto assets” is one of them. Others are pension funds; environmental, social, and governance (ESG) investing; standards of conduct; and information security and operational resiliency.
Regarding crypto assets, the SEC explained that “The Division will conduct examinations of broker-dealers and RIAs [registered investment advisors] that are using emerging financial technologies to review whether the unique risks these activities present were considered by the firms when designing their regulatory compliance programs.” The securities watchdog elaborated:
Examinations of market participants engaged with crypto assets will continue to review the custody arrangements for such assets and will assess the offer, sale, recommendation, advice, and trading of crypto assets.
The report details how the Division will conduct examinations of mutual funds and ETFs [exchange-traded funds] offering exposure to crypto assets to assess, among other things, compliance, liquidity, and operational controls around portfolio management and market risk.
