FINRA Reporting on Digital Assets Has Some Broker-Dealers Avoiding Crypto

FINRA has been “encouraging” broker-dealers to report details about digital assets. It is good to have formal rules, but some broker-dealers are avoiding crypto to avoid the soft requirements.

In simple terms, FINRA (a non-governmental organization that regulates member brokerage firms and exchange markets) is “encouraging” (essentially requiring, as if you don’t comply… they gonna ask why) broker-dealers and other such entities who facilitate the exchange of digital assets or products related to digital assets to provide an array of information about every aspect of transactions related to digital assets.

That is, FINRA is collecting info on each broker-dealer, fund, and/or person who touches these assets via a broker, and generally is also collecting information on every other aspect of a trade (i.e. this is about broker-dealers in equities markets, not crypto exchanges specifically, they have their own rules).

This means that there is a long paper trail on anyone trading digital assets via a broker essentially required by FINRA.

That means if your broker-dealer is letting you trade say GBTC, they are probably also submitting detailed records to FINRA.

That also by proxy means that some broker-dealers (and other such entities) are skipping out on allowing the trade of assets like GBTC, to avoid the paperwork and reporting.

This is like a mix between death by paperwork and a positive sign of crypto being taken seriously.

With that noted, a similar thing is happening with weed stocks.

If your broker stopped letting you trade Tilray or GBTC, for example, this helps explain why.

For more reading, see: FINRA Encourages Firms to Notify FINRA if They Engage in Activities Related to Digital Assets (notice 18-20).

Are bans permeant? No, everything is constantly up to review. Remember the bans come from the broker, not from the state. That said, once one of these brokers dig their teeth in, they generally tend not to let go. We may love our crypto and weed, but for these guys they need to be taking a serious hit before they are going to bend to our whims and turn trading back on. Once again, we are likely at the whim of the SEC (like with a Bitcoin ETF). This is to say, don’t HODL your breath.

NOTE: I’m pretty sure there is a bit more going on in the background with the SEC and National Futures Association, the reason I’m focusing on FINRA is because it was the one solid official release I could find that correlated with some brokers banning crypto products for their clients. Essentially from what I can glean the public and private watchdog groups are tag teaming crypto (and I think weed stocks) a bit. Check out this article from Bloomberg: Brokers’ Cryptocurrency Deals Are Focus of SEC Review.

What do weed stocks and crypto have in common? The answer is nothing good unfortunately. They are both a bit of a grey area with some unclear guidelines. They are both also new asset classes that include some low liquidity, scammy, and often pumped up assets. I am a big fan of both these asset classes, but the reality is that these new and volatile assets are getting wrenches thrown at them, as you might and should expect. Hopefully this round of oversight leads to clear SEC guidelines down the road which open the flood gates back up. For now though, we should just be crossing our fingers that the CFTC gives the thumbs up to Bakkt.

Author: Thomas DeMichele

Thomas DeMichele has been working in the cryptocurrency information space since 2015 when was created. He has contributed to MakerDAO, Alpha Bot (the number one crypto bot on Discord),...

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