Crypto Assets

Crypto assets—also known as digital assets—are assets that are issued or transferred using distributed ledger or blockchain technology. They include, but are not limited to, so-called “virtual currencies,” “coins,” and “tokens.” A particular crypto asset may or may not meet definition of a “security” under the federal securities laws. FINRA rules that relate to securities, or that do not depend on securities status, may impose obligations on the crypto asset-related activities of member firms and associated persons. 

In Regulatory Notices 20-23 (July 2020) and 21-25 (July 2021), FINRA encouraged member firms to notify FINRA if they or their affiliates engage in, or plan to engage in, activities related to crypto assets, including crypto assets that are not securities. 

As a result of our outreach and other efforts, FINRA has identified member firms with direct or indirect touch points to crypto asset-related activities. These include firms engaged in private placements of crypto asset securities, the operation of Alternative Trading Systems (ATSs) for crypto asset securities, and the operation of Special Purpose Broker-Dealers (SPBD) pursuant to the Securities and Exchange Commission’s December 2020 statement, Custody of Digital Asset Securities by Special Purpose Broker-Dealers (SPBD Statement). Other member firms have engaged in proprietary trading of crypto assets or distributed ledger technology initiatives for traditional securities or have established relationships with affiliates or other third parties to provide their customers with access to crypto asset-related products and services.

Associated persons have also engaged in a range of crypto asset-related activities through outside business activities (OBAs) or private securities transactions (PSTs), including PSTs for compensation that impose additional supervisory requirements on firms pursuant to FINRA Rule 3280(c). Examples include proprietary trading, operating investment funds that invest in crypto assets, selling private placements or crypto asset offerings, and participating in crypto mining operations. 

A prospective member firm that intends to engage in crypto asset activities must seek approval for new FINRA membership through the submission of a New Membership Application pursuant to FINRA Rule 1013. An existing member firm that is contemplating a material change in business operations—including a material crypto-related change in business operations—must submit a Continuing Membership Application(CMA) pursuant to FINRA Rule 1017. FINRA follows the SEC’s guidance—including the SPBD Statement, the Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities (July 8, 2019), and the No-action Letter, ATS Role in the Settlement of Digital Asset Security Trades (September 25, 2020)—when assessing a firm’s proposed crypto asset business lines under applicable rules. 

As crypto asset markets continue to evolve and new products and offerings become available to customers, FINRA will continue to adjust our regulatory program to address the crypto asset-related activities and conduct of member firms and associated persons for compliance with the securities laws and FINRA rules. To lead these efforts and ensure FINRA is prepared to fulfill our regulatory mission now and in the future, FINRA established the Crypto Hub, the Crypto Asset Investigations team (CAI), the Blockchain Lab (Lab), and the Crypto Asset Surveillance Team (CAST).