The US Securities and Exchange Commission (SEC) has reportedly launched a nationwide crackdown on what it deems to be potential misconduct involving cryptocurrencies.
According to three undisclosed sources who spoke with Politico, the SEC’s Office of Compliance Inspections and Examinations has been asking professional investment advisors, who manages more than USD 100 million, for information about initial coin offerings (ICOs) and cryptocurrencies.
According to Politico, the so-called investment advisors include large institutional investors like private equity funds and hedge funds that are operating in the cryptocurrency space.
One issue the SEC is reportedly looking into is that of custody for cryptocurrency investors. In the world of traditional finance, third party custody solutions are normally mandatory to use for professional money managers. However, the lack of such solutions in the cryptocurrency space means many firms have come up with their own solutions, thus operating in a legal grey area.
Another problem is that the lack of regulatory clarity means professional money managers to a large extent don’t know how they should report their crypto activities to the SEC in order to stay compliant. However, according to Gail Bernstein, general counsel at the Investment Adviser Association, the best thing they can do is just to think of crypto investments as any other investment “through the lens of their fiduciary duty and compliance programs.” He told Politico, that “typically, after a sweep of this type, the SEC staff will publish its findings and observations, and that can provide very helpful guidance for advisers as they consider their compliance obligations.”
In other words, investment advisors dealing with crypto investments for clients better hope the SEC will choose someone else to set an example for the rest of the industry to learn from.
Last year, SEC Chairman Jay Clayton said that the agency will “police this area [cryptocurrencies] vigorously and recommend enforcement actions against those that conduct initial coin offerings in violation of the federal securities laws.”