SEC plans scrutiny of crypto dealer-brokers, transfer agents, per 2024 exam guide

The SEC sets examination priorities based on feedback from examiners and input from investors and the industry.

The United States Securities and Exchange Commission released its 2024 examination priorities report on Oct. 16. The agency’s Division of Examinations has been publishing similar reports for over a decade to let its registrants know the emerging risks it will be focusing on. Crypto dealer-brokers, among others, have been given notice.

The SEC’s examinations division expanded its capacity and set up teams within its various programs to address crypto, fintech, AI and cybersecurity in 2023, the report said. It added that the SEC was continuing to observe broker-dealers and advisers working in crypto.

The division was looking at registrants that offer new practices, “particularly technological and online solutions that service online accounts aimed at meeting the demands of compliance and marketing,” such as “automated investment tools, artificial intelligence, and trading algorithms or platforms.”

Examinations will look at how well registrants meet standards of conduct regarding customer advice and their understanding of the products the registrants offer. The report mentioned older investors and retirement assets specifically. They will also ensure that registrants are complying with the latest guidance. Here, “custody requirements under the Advisers Act” were singled out. The handling of risks associated with using blockchain and distributed ledger technology will also be assessed.

Examinations of transfer agents servicing crypto asset securities issuers or using emerging technologies in their work were mentioned separately.

Interesting to see that the SEC has identified prep for T+1 as an examination priority for brokers in 2024. The list is usually focused on things less plumbing-related, but it shows they’re going to be getting the red pens out before May next year. #finreg pic.twitter.com/RsPnL6JZtq

— Virginie O’Shea (@virginieoshea) October 16, 2023

The Division of Examinations has published examination updates before, but this is the first time one has appeared at the beginning of the new fiscal year. Division irector Richard Best said:

“Continuing to make our examination priorities public increases transparency into the examination program and encourages firms to focus their compliance and surveillance efforts on areas of potentially heightened risk to retail investors.”

According to the SEC, examination priorities are determined based on feedback from examination staff in the previous year, as well as from investors, industry groups and similar sources.

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