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First Step to Crypto for FAs: Understand the Regulations

By Crucial Clips     January 12, 2021
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ, Dec. 9, 2020 

MRINALINI KRISHNA, REPORTER, FINANCIAL ADVISOR IQ: I'm Mrinalini Krishna, Reporter for Financial Advisor IQ and with me today is Carlo di Florio, he's the chief services officer at ACA Compliance. He's also worked with the SEC and Finra in the past. What would your advice be to advisors that are looking to have conversations around cryptocurrency with their clients or offering cryptocurrency as an investment vehicle to clients when it comes to compliance?

CARLO DI FLORIO, GLOBAL CHIEF SERVICES OFFICER, ACA COMPLIANCE: I would certainly encourage the firms to engage with the regulators [and] really understand what the process is that they're required to follow in terms of registration with the SEC, with Finra, and engage with counsel and with advisors like ACA to help the firms through those processes. Because that's the first place that firms are getting into trouble is that they are not appropriately evaluating the regulatory posture of what they're considering and therefore not appropriately registering with the regulators.

MRINALINI KRISHNA: Since Bitcoin has picked up in its price again, it's close to the highs that it was seeing a few years ago, there's a lot of interest amongst investors to get a piece of the action. Also that creates a need for advisors to offer that kind of advice. Where can advisors trip in terms of compliance making those kind of recommendations?

CARLO DI FLORIO: They have to be really careful to make sure that the products or advice they're giving comply with their fiduciary obligations. So they have to do a lot of due diligence on the investments that they're considering or in the products that they're evaluating and potentially recommending on, and making sure that they're confident that those are developing in a manner consistent with the securities laws and regulations in terms of registration and regulatory review.

They have to make sure that they are really careful about how the trading in those currencies and those digital assets may occur, where it would occur, what the risks are with that kind of trading, whether it's on an exchange, an offshore trading platform, an ATS — that's been a bit of the weak link in the chain. And there's been a lot of fraud and loss on some of the trading platforms. They need to be thinking about the clearance and settlement in those types of assets and how is that going to work. And is it going to work in a manner consistent with the regulations and requirements that the SEC and others are putting forward?

Then they have to think about custody and how they're going to meet their requirements and responsibilities under the custody rule to ensure that they are safeguarding their clients' assets. So those are some of the key areas that they need to really keep front and center.

MRINALINI KRISHNA: Thank you so much, Carlo.

CARLO DI FLORIO: Thank you. It was a pleasure talking with you.

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Tags:  Regulatory/legal issues , Investment strategies , Portfolio management

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