Compliance Scorecard for Transparency and Duties to Investors
Investor protection continues to be a common theme and strategy for regulatory compliance and enforcement pressure points. As you consider year-end efforts, think about your compliance scorecard for transparency and duties to investors.
COMPLIANCE NEWS
Conflicts and Insider Trading with NFTs- OpenSea’s Nate Chastain is at the center of an insider trading scandal involving its NFT marketplace. Chastain has resigned after a number of NFT traders on Twitter posted they noticed that a wallet belonging to Chastain was often at the center of transactions involving NFTs that appear on the front page of OpenSea.
Watch Banking Developments – Biden’s pick for the Head of the OCC has said she wants to “end banking as we know it,” including greater government oversight of Wall Street and cryptocurrencies. Read more about her nomination.
Read the First Speech from the New Head of Broker Enforcement – In a recent speech, the new Director of the SEC Division of Enforcement commented on a shared mission and top priorities for his Division. More than once, he referred to his perspective on “proactive compliance steps” and he referred to a comment by Chair Gensler to hold compliance officers accountable for proactive compliance.
“… three key steps towards achieving this mission, and the first starts with each of you. In a speech he gave in May, Chair Gensler said: “[I]f you’re asking a lawyer, accountant, or adviser if something is over the line, maybe it is time to step back from the line. Remember that going right up to the edge of a rule or searching for some ambiguity in the text or a footnote may not be consistent with the law and its purpose.” This is a critical point and let me explain why…
Training Alert: Failure to register as a FCM Case. – The CFTC issued a $1.25 million penalty fine against Kraken to settle charges against the crypto-exchange company after it allegedly failed to register as a futures commission merchant (FMC) and offered illegally margined digital asset services, among other violations.
Protect Your Data – Carefully consider the risks before you agree to let a vendor use your firm’s aggregated data. In this case, the vendor gathered and sold source data to hedge funds in violation of reps and warranties in the legal agreement to limit its use to aggregated data.
SEC DEVELOPMENTS
Guidance by Testimony – In recent Testimony by Chair Gensler before the House of Representative Committee on Financial Services, Chair Gensler noted that Congress could be helpful in filling the gaps between the SEC and CFTC oversight of the crypto assets market. He commented “Currently, we just don’t have enough investor protection in crypto finance, issuance, trading, or lending” as he listed the Commission’s priority efforts.
Conflicts of Interest Remain a Priority. This recent speech by Chair Gensler highlights issues with Data Analytics “In the case of robo-advisers or investment advisers, I wonder what they are doing within the predictive data analytics algorithms — if, statistically speaking, they are maximizing for our returns as investors, or, say, the revenues of the platforms. Further, to the extent that they’re maximizing revenues or doing a bit of both, how do we address the potential conflicts of interests that arise?”
