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In a recent development, the Securities and Exchange Commission (SEC) has unveiled its 2024 Examination Priorities report, highlighting its commitment to address pressing issues within the financial landscape. The report underscores the SEC’s determination to tackle various “risk areas impacting various market participants,” with a particular emphasis on products and services linked to cryptocurrency, emerging technology, and Anti-Money Laundering (AML) compliance.
Scrutinizing Cryptocurrency and Emerging Financial Technologies
The SEC’s report outlines a dedicated focus on crypto assets, encompassing their offer, sale, recommendation, and trading. Specific areas of examination include:
- Assessing whether registrants adhere to the prescribed standards when advising on cryptocurrency products.
- Regularly reviewing, updating, and enhancing compliance practices, covering aspects such as crypto asset wallets, custody practices, Bank Secrecy Act (BSA) compliance, and valuation procedures.
- Ensuring compliance with custody requirements under the Advisers Act, which are applicable to crypto assets categorized as funds or securities.
- Addressing technological risks associated with the use of blockchain and distributed ledger technology.
Additionally, the Division will shine a spotlight on broker-dealers and investment advisers utilizing emerging technology, such as mobile applications for broker-dealers and automated investment advisory services.
AML Compliance under the Bank Secrecy Act
The report underlines the importance of Anti-Money Laundering (AML) compliance in accordance with the Bank Secrecy Act (BSA). It mandates financial institutions, including broker-dealers and specific registered investment companies, to tailor AML programs to their unique business models and associated risks. The SEC will assess whether these entities:
- Adequately tailor their AML programs to their individual business models and risk profiles.
- Conduct independent testing of their AML programs.
- Establish effective customer identification programs, particularly for beneficial owners of legal entity customers.
- Fulfill their obligations concerning the reporting of suspicious activities (SARs).
Furthermore, the Division will diligently monitor broker-dealers and advisers to ensure they are complying with the Office of Foreign Assets Control (OFAC) sanctions.
The SEC’s strong focus on AML compliance follows earlier alerts, particularly one published on July 31, which highlighted deficiencies in broker-dealers’ adherence to AML laws. The Division’s commitment to addressing these issues is evident, especially in the areas of independent testing of AML programs, employee training, and know-your-customer procedures.
Conclusion
For market participants involved with digital assets and emerging technologies, the SEC’s 2024 Examination Priorities report delivers a clear message. The SEC is set to allocate substantial resources to assess the impact of these technologies on both the market and its participants. Consequently, it is imperative for all industry stakeholders to proactively implement and uphold compliance measures to navigate future examinations successfully and avoid potential referrals to SEC enforcement staff.
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Hi, I’m Ahmed Falah. I work at the intersection of technology, finance, and human well-being, exploring how emerging digital systems can create sustainable and impactful growth across businesses and society.
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