Though once thought no more than a digital curiosity, a passing Millennial trend, or something only used by criminals in illicit, internet-based black markets, so-called virtual currency (which includes cryptocurrency, like the well-known Bitcoin), has become a staple of the modern financial world and is rapidly gaining not only legitimacy but also widespread use.
As such, it behooves the modern firm to spend time understanding and learning about, these rapid changes now taking place in our digital society. Gen X, Millennials, and even Gen Z (the post-Millennial generation born after 1992) have rapidly assimilated to this new form of currency, many becoming wealthy in the process of early investment. ICOs (initial coin offerings) are quickly becoming commonplace for new companies wishing to raise capital in a non-traditional fashion.
With all the mainstream attention such currencies are getting, OFAC (The Office of Foreign Assets Control) is urging FCMs (futures commission merchants) and IBs (introducing brokers) to educate themselves on the wide range of virtual currencies and on transactions using such currencies in general by reading their FAQs on the subject.
That being said, this is a brave new digital world that we’re entering — it may be not so far in the future that investors come into firms with nothing but virtual currency at their disposal. Though of course no one can predict the future of these strange new currencies, all firms should take the time to research and understand how these currencies work so that they can be prepared to meet their investor’s expectations and to be the knowledgeable, informed subject matter experts (who understand the nuances of investing in a world that includes virtual currency) that their clients expect them to be.
Compliance Remains the Same Regardless of What Currency Your Clients Use
Regarding the FAQs themselves, one of the more interesting questions is whether compliance remains the same when a transaction involves digital currency.
The answer is a resounding yes. Just as with traditional currency, OFAC requires firms to follow the same rules and regulations for digital currency.
Though this may seem like common sense, many firms have rightly questioned whether compliance remains the same with a currency that is not guaranteed by any jurisdiction and cannot even be said to have status as legal tender. Especially given the ease and propensity with which, still today, fraud and other illicit activities are conducted using these currencies, firms are right to ask these questions.
Most regulatory bodies, seeing the rise of these currencies and their popularity, are proactively adopting policies and procedures to guide firms in their conduct with respect to virtual currencies. To put it simply—this is not going away, and your firm needs to be up to date on what each regulatory body has to say about what your firm is and is not responsible for when virtual currency is in use by your clients (or by the firm itself).
At the 2018 Investment Adviser Compliance Conference, ICOs, cryptocurrency, and virtual currency were a consistent topic of discussion — click to read more about the conference and what else the SEC is focusing on for 2018.