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U.S. SEC Warns Advisers They Need to Know Crypto Before Recommending to Clients
Brokers and investment advisers have to understand crypto and ensure it's in clients’ best interests before pitching investments, the SEC staff said in a bulletin.
Updated Apr 21, 2023, 8:09 p.m. Published Apr 20, 2023, 7:00 p.m.
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The U.S. Securities and Exchange Commission (SEC) is advising brokers and investment advisers they need to use heightened scrutiny when it comes to making crypto recommendations to ensure the risky products are in the best interests of their clients, the agency said in a new bulletin.
The Thursday staff bulletin – outlining the duties the advisers have to customers – specifically mentioned crypto, continuing the agency’s recent focus on the sector after having largely ignored digital assets in its rules and guidance until last year.
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“Certain products are more complex or have additional risk features, which may make it more difficult for firms and their financial professionals to develop an understanding,” according to the SEC guidance, and “crypto asset securities” are among the examples provided. So when brokers or advisers talk to customers about crypto, the advisers must ensure those they’re advising understand the products and whether crypto offerings make sense for clients’ specific financial situations, according to the bulletin, which represents the staff’s view on existing regulations and isn’t a new rule.
In February, the SEC also proposed a rule that investment advisers registered with the agency must keep clients’ crypto assets with a “qualified custodian,” which Chair Gary Gensler said will almost certainly leave out existing crypto platforms. In the SEC’s view, that generally means keeping the assets with a chartered bank or trust company or a broker-dealer registered with the agency – potentially meaning the SEC is seeking to effectively sever the advisers from the crypto sector.
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