As the crypto market has grown, FINRA has evolved its regulatory program to better understand the market and to oversee member firms and associated persons for compliance with the securities laws and FINRA rules, according to Jason Foye, Chief of FINRA’s Crypto Hub.
FINRA’s core mission is to protect investors and promote market integrity, he said.
“This mission is at the heart of everything we do,” he said.
According to Foye, the crypto market has rapidly grown over the last decade, with a current capitalization of just north of $1 trillion, down from a high of approximately $3 trillion in 2021.
Foye said that even with the recent decline in assets, the size of the crypto asset market, retail investor participation in it, and recent events, such as the collapse of FTX, underscore the importance of FINRA’s work in this area.
That is why FINRA started a Crypto Hub in October 2022, also known as the Hub, according to Foye.
The Hub includes representatives from nearly every FINRA department working as a nerve center to manage FINRA’s regulatory work related to crypto assets, he explained.
Prior to the Hub being established, FINRA also established the Crypto Asset Investigations (CAI) team and Blockchain Lab, which are specialized units staffed with crypto asset subject matter experts.
FINRA is engaged in a variety of initiatives designed to build for the future and enhance its capabilities, Foye said.
Key aspects of this work are FINRA’s efforts to engage with other state, federal, and international regulators and agencies to discuss crypto asset regulatory efforts and developments, as well as our efforts to engage with member firms and other industry participants to better understand current crypto asset activities and issues, he added.
A special summit attended by crypto asset subject matter experts from FINRA and the National Futures Association is one example of this work.
Foye said that FINRA is also developing blockchain-related regulatory initiatives to explore on-chain data, and building tools and exploring vendor solutions that can support and enhance FINRA’s regulatory capabilities.
As part of these efforts, FINRA has:
- established nodes on the Ethereum and Bitcoin blockchains, and explored the use of publicly available crypto asset market data,
- created a method for verifying that member firms or certain associated persons (e.g., those managing investor funds away from their employing broker-dealer in crypto asset private securities transactions) have control over crypto asset wallets they purport to control, and
- tested crypto asset investigative and surveillance tools and in certain instances, deployed tools for use in crypto asset investigations and other regulatory work.
“FINRA is advancing our core mission to protect investors and promote market integrity through our critical crypto asset-related regulatory work across the organization,” commented Foye.
This work includes gathering information about member firms’ and associated persons’ crypto asset activities; reviewing members for compliance with applicable rules and regulations; and pursuing initiatives to build for the future and enhance our overall capabilities in this space, he said.
“FINRA is committed to this work and our regulatory mission,” he concluded.
