The way people make money with cryptocurrency is changing, and the groups that watch over financial advisors are taking notice. State securities regulators want stricter oversight on how investment professionals handle crypto. This could affect anyone who gets financial advice or has money in these digital assets.
NASAA, the group representing state securities regulators, recently told FINRA (the watchdog for brokers) that crypto activities need closer attention. They’re concerned about investment professionals dealing with crypto outside their main jobs without proper supervision.
“Digital assets blur the line between personal and professional activities,” explains Melanie Senter Lubin, NASAA’s president. “When financial advisors get involved with crypto, customers might think it’s part of official business even when it’s not.”
NASAA wants three crypto activities added to what financial firms must watch when their employees work outside the firm. These include owning cryptocurrency collectibles (like NFTs), lending crypto on platforms that pay interest, and holding cryptocurrencies that give rewards for helping run the network.
This push comes as FINRA is updating its rules for overseeing outside business activities. The current rules make firms watch over certain outside activities but give more freedom for personal investments. NASAA believes crypto doesn’t fit neatly into either category.
Many financial advisors already work with crypto in some way. A recent survey found that 15% of advisors put client money in crypto investments last year, and 20% plan to increase this in 2024. With more professionals getting involved, regulators worry about potential problems.
“Customers might not understand the risks when their advisor recommends crypto investments,” says Joe Rotunda from the Texas State Securities Board. “Without proper oversight, there’s more chance for confusion or even fraud.”
The debate highlights how traditional rules struggle to keep up with new digital assets. Cryptocurrency doesn’t always act like traditional investments. Some coins offer rewards similar to interest, while NFTs combine investment with collecting digital art or items.
Financial firms have mixed feelings about the proposed changes. More oversight means more work for compliance departments. Some industry groups argue that personal crypto holdings shouldn’t face more restrictions than other investments like stocks or real estate.
“We need balance,” says Jack Gillis from the Consumer Federation of America. “Investors deserve protection, but we don’t want rules so strict that innovation stops or pushes activity underground.”
State regulators point to recent crypto company failures like FTX as reasons for caution. When these platforms collapsed, many investors lost money, including some who were guided there by financial professionals.
FINRA is reviewing all comments before making final decisions on the rule updates. Whatever they decide will affect how thousands of financial advisors interact with cryptocurrency. The outcome could either encourage more professionals to embrace crypto or make them more cautious about getting involved.
For everyday investors, these regulatory changes matter. Better oversight might mean fewer scams and clearer information about risks. But it could also limit access to crypto advice from traditional financial experts.
“The goal isn’t to stop innovation,” Lubin says. “We just want to make sure investors know what they’re getting into and advisors follow the same standards with crypto as they do with other investments.”
As cryptocurrency continues growing more mainstream, finding the right balance between innovation and protection remains challenging. This regulatory discussion shows how financial rules are slowly adapting to the digital age, even if the process isn’t always smooth or quick.
