How investment advisers can adapt their compliance program for crypto

As cryptocurrencies continue to grow in volume and popularity, many investment advisors are being required to stand up and take note.

In a recent post by Compliance Solutions Strategies, the RegTech firm underlined the new possibilities and challenges surrounding the digital asset and where registered investment advisers (RIAs) can start.

The firm detailed that its approach to crypto was simple, in that RIAs should apply the same compliance rigor to cryptocurrency as they do to every other investment, product offering or business line.

By taking this approach, it is important that compliance is front and center of any cryptocurrency investment plan. This is especially prominent considering the shaky regulatory standards around cryptocurrencies right now.

CSS noted that when implementing a cryptocurrency offering, an RIA needs to consider the impacts across its business and ensure that it dedicates the required resources to addressing any challenges. The firm cited six key compliance tasks that an RIA will need to undertake in order to offer cryptocurrency investing.

First of all, RIAs should analyse whether and how cryptocurrency fits into their business and client needs, including which cryptocurrencies will be offered, client objectives and suitability, the extent of the advisory services you will provide and the compliance implications for each.

RIAs should also select service providers and conduct due diligence. When selecting a platform, consider the provider’s capabilities, reporting integrations and user experience. When choosing a custodian, consider best execution capabilities, books and records, safety and security, qualified custodian status and valuation practices. The advisors should also update disclosures for Form ADV Part 1, Part 2A and Form CRS as well as client, risk and marketing disclosures.

The investment advisors should also amend their policies and procedures to incorporate cryptocurrency risks and controls, which may involve updating existing policies or introducing entirely new policies to cover cryptocurrency and digital assets. Finally, RIAs should stay current on regulatory and compliance developments, including speeches by the SEC staff, risk alerts and any proposed rulemaking

CSS concluded, “Continue evolving your program to regularly evaluate your cryptocurrency offerings, monitor service providers, revise policies and procedures and conduct regular staff training.

“We believe there is a clear path forward for RIAs looking to incorporate cryptocurrency within their business. Chief Compliance Officers need to be an integral part of the process, from product development to ensuring that the RIA continues to meet its fiduciary duty, by ensuring the firm applies the same compliance rigor to cryptocurrency as they do to other initiatives.”

Read the full post here.

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