Even After SEC Guidance, Compliance Blind Spot Remains for Cryptocurrency Trading
Given the nature of token and cryptocurrency trades, investment advisors may run afoul of SEC rules concerning employees' personal trades.
September 21, 2017 at 11:56 AM
4 minute read
In late July 2017, the Securities and Exchange Commission (SEC) did what many had expected for quite some time: It issued guidance that tokens—essentially assets, or ownership shares bought with cryptocurrency—can be regulated as securities under federal securities laws.
The guidance specially referred to tokens sold by The DAO (Decentralized Autonomous Organization) that essentially acted as shares which paid dividends to its owners. The SEC made clear that it did not seek to create a blanket regulation, but would instead assess if tokens or cryptocurrency-backed trades were securities on a case-by-case basis.
The guidance pushed investors and their advisors to heed federal securities laws. But given the nature of token and cryptocurrency trading, it also had other, less obvious, legal ramifications for investment advisory companies. The legal risks for these companies stem from the SEC using the Investment Advisors Act of 1940 to mandate that all investment advisories have an enterprise-wide code of ethics for their employees.
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