• The U.S. Securities and Exchange Commission (SEC) has advised financial professionals to exercise enhanced scrutiny when recommending high-risk or complex products, including cryptocurrencies or “crypto asset securities”.
• SEC has called for firms and financial specialists to collect information about retail investors to assess whether a complex or high-risk product is suitable for them.
• The recommendation follows the SEC filing charges against crypto exchange Bittrex for reportedly breaching securities laws.
SEC Calls For Enhanced Scrutiny On Crypto Assets
The U.S. Securities and Exchange Commission (SEC) recently urged financial professionals to practice enhanced scrutiny when suggesting intricate or high-risk products, including cryptocurrencies or “crypto asset securities” as defined by the agency. Financial professionals must possess a comprehensive understanding of the risks associated with specific investment products before presenting them to clients in order to determine if these products are in the best interest of retail investors. Products that may necessitate enhanced scrutiny comprise inverse or leveraged exchange-traded products, margin-traded investments, derivatives, crypto asset securities, penny stocks, private placements, asset-backed securities, volatility-linked exchange-traded products, and reverse-convertible notes.
Information Collection On Retail Investors
Firms and financial professionals should collect information about retail investors before suggesting a complex or high-risk product in order to establish if it is appropriate for them. This data may encompass the investor’s particular trading goal corresponding with the product’s description and their capacity to endure an elevated risk of financial loss. However, possessing such a goal or capacity does not automatically indicate that the product serves the investor’s best interest; firms and financial professionals must maintain “a reasonable basis” to believe that based on all pertinent facts and situations that it is in their best interest.
Charges Against Crypto Exchange Bittrex
This recommendation came after SEC filed charges against crypto exchange Bittrex for purportedly violating securities laws by amassing at least $1.3 billion in illicit revenue from 2017 to 2022 according to Gary Gensler during his tenure as agency chairperson who launched approximately two dozen enforcement actions related to cryptocurrencies during this period..
In conclusion, SEC has raised awareness among finance professionals regarding providing adequate services while recommending high risk digital assets such as cryptocurrency which require thorough analysis before being suggested as an investment option by any firm advisory service provider so that Retail Investors can make informed decisions accordingly .