FINRA is considering new rules aimed at the “narrow issue” of disclosures for wealth managers and other members that offer certain cryptocurrency assets, CEO Robert Cook said.

Cook made the comment in a panel held with SEC Commissioner Hester Peirce and other regulators at the New York Law School’s Ronald H. Filler Institute for Financial Services Law. While Peirce dove into the growing debate in the industry and among regulatory agencies as to what rules should govern digital currencies such as Bitcoin and Ethereum, and technology such as blockchain, Cook sought to downplay the impact of any possible new FINRA standards.

Citing the example of a 2018 rule issued by the National Futures Association requiring new disclosures for members engaging in virtual currency business, Cook called the matter “a question mark” worthy of more industry feedback about situations when firms or their representatives are “the gatekeeper or the front end offering products to customers that may not be securities products.”

“We’re looking closely at that to decide whether it might be appropriate for us to provide some similar type of guidance to our firms because the investors might think, ‘I’m dealing with a regulated entity selling me regulated products,’” Cook said. “They’re not offering it to somebody. They’re offering it on behalf of somebody else. And it may not be clear that some of the same protections or rule sets apply.”

Cook said “the broad topic of who’s regulating crypto assets” is an important one but didn’t take a position on what kind of regulatory structure or regime should be put in place by the Biden Administration. Uncertainty around compliance risk has caused many advisors and firms to balk at the notion of working with crypto in any capacity. However, more large firms are jumping at the opportunity, and startups are trying to encourage greater adoption as well.

In line with earlier comments Pierce has made calling for caution against governmental overreach when it comes to crypto assets and her prior position at the anti-regulation think tank the Mercatus Center at George Mason University, the Trump Administration appointee warned that some proponents of new rules are missing the point of the currency and tech.

SEC Commissioner Hester Peirce

SEC Commissioner Hester Peirce took office in January 2018 after earlier roles with the agency and a stint as a senior counsel to Republican members of the U.S. Senate Committee on Banking, Housing and Urban Affairs.


“They’re scared to see this asset class growing so fast. They’re scared that maybe it’s going to provide some competition to some of the things that government does. And they’re scared that it’s going to make it harder for the government to regulate financial services,” Pierce said.

“Regulation borne out of fear is not likely to be very good,” she continued. “The first thing we need to do is just take a step back, acknowledge that there are risks associated with crypto, but also acknowledge that there are real positives and that people really are finding value in this asset class and in what it might mean for the future of society. It’s not only an asset class, but it’s a new way of coordinating human activity. It’s a new way of transferring value across the internet, which is something that we haven’t been able to do before in an efficient way.”

Cook agreed with Pierce that the SEC should work with the CFTC and Congress on any jurisdictional issues involved with crafting crypto regulations. In the meantime, FINRA is “working on getting smart” about cypto assets and technology in general, he said.

For starters, FINRA is building its own analytical tools enabling the regulator to act as a node and block explorer on common blockchains in order to track the activity. In addition, it’s integrating digital ledger tech into its own internal processes, though Cook stopped short of offering specifics.

“We’ve identified a business process where we think those techniques could add some real value, and we’re in the process of developing a pilot to adopt blockchain technology in what we do, which I hope will ultimately make us better at understanding the issues,” he said.