Towards the end of October, the SEC made it clear that it will keep a close eye on the crypto business in its most recent report, which outlines its Examination Priorities for 2025.
The EXAM department is keeping a closer eye on companies that supply, sell, and allow people to trade cryptocurrencies. This is because the market for these assets is getting bigger and more complicated, especially since Bitcoin ETFs and other similar assets came out in early 2024.
The Exam Division’s Acting Director, Keith Cassidy, stated that crypto is one of the areas that may carry “potentially increased risk” for users in the coming year.
But what does this mean for crypto?
Gensler to Step Down on January 2025
The SEC Chair, Gary Gensler, made the headlines by issuing a press release on Nov 21, announcing his resignation on the presidential inauguration day, Jan 20, 2025. Gensler’s resignation is partly in response to Trump’s promise at the July Bitcoin Conference, where he pledged to fire Gensler on the first day of taking office.
In the past year or so, Gensler had always been under heavy fire from the crypto for imposing aggressive rules on the industry, leading to the SEC’s legal feud with many major cryptocurrency companies, particularly the famous Ripple vs. SEC case.
In response to such criticisms, the recent press release pointed out that Gensler managed to hold “wrongdoers” accountable and save people from “billions” of financial loss.
But, people in the crypto camp disagree wholeheartedly, including Blockchain Association’s CEO, Kristin Smith. Upon hearing the news, she wrote on X that this resignation will be the end of “harassment” and “the beginning of a new era” for the crypto sector.
AI Taking the Spotlight
Back in October, Gensler showed his stance on AI and its potential threat to financial stability by posting a video on X and comparing it to the movie “Her,” showing why the financial sector cannot only rely on a handful of AI models to be a part of its future yet.
As with other emerging technology and data streams, EXAMS is keeping an eye on how registrants use trading systems or websites, AI, and automated investment tools, and what risks are associated with these things.
AI Washing, Cybersecurity, Vendor Oversight
Regarding AI, the SEC will check to see if registrants have put in place proper guidelines and processes to oversee how they use AI for things like trading, back-office tasks, preventing and detecting fraud, and anti-money laundering (AML), as required.
Staff members will check the security measures taken by registrants who utilize external AI models and technologies to prevent the disclosure or abuse of customer data. There have been accusations of “AI washing,” and the Division plans to investigate whether registrants have been truthful about their AI skills and applications.
Cybersecurity and vendor supervision are two of the SEC’s top concerns for 2025. Internal controls, vendor monitoring, and consumer protection procedures are all part of a firm’s policy to avoid service disruptions and secure investment information. With testing and oversight, compliance programs show that they are keeping an eye on things, especially with third-party partnerships and “shadow IT, while following uniform cybersecurity rules in all activities.
Crypto Once Again a Top Priority
Cassidy pointed out that 2025 won’t be much different from 2024 for crypto, stating that the SEC is only focused on “investor protection.”
In similar lines, the SEC announced that with the current “volatility” and complexity in the crypto sector, EXAM will keep a close eye on the conduct of registrant companies that offer specialized services.
Of course, the SEC’s jurisdiction over cryptocurrency has been a controversial topic, even leading some companies like Crypto.com to sue the organization on the grounds of “overstepping” its boundary of authority in the sector.
As the SEC is still very interested in cryptocurrency, EXAMS will keep an eye on registrants who provide services involving cryptocurrency and, where necessary, audit them. When registrants provide crypto information to users, they will be checked to see if they follow the relevant code(s) of conduct. They will also be checked to see if they regularly review, update, and improve their sources of data.
The SEC wants companies to keep and improve their compliance practices by reviewing crypto asset wallets, storage processes, BSA compliance routines, and valuation strategies. Businesses need to keep records of all contacts and actions involving cryptocurrency, keep risk disclosures up-to-date, and show that they have taken security precautions using blockchain technology.
Implications for the Crypto Sector
The SEC’s Examination Priorities for 2025, as outlined in the SEC EXAM 2025 initiative, have significant implications for the cryptocurrency sector. The agency is intensifying its scrutiny of crypto assets and related businesses, focusing on compliance with federal securities laws. Key implications include:
Enhanced Regulatory Oversight
The SEC plans to closely examine broker-dealers, investment advisers, and exchanges that deal in crypto assets. This increased oversight could lead to stricter compliance requirements for crypto firms, impacting their operations and practices.
Investor Protection Focus
The SEC is prioritizing investor protection in the rapidly evolving crypto market. By scrutinizing how crypto firms disclose risks and market their products, the SEC aims to reduce potential fraud and misinformation, which could instill greater trust among retail investors.
Legal Classification of Tokens
The SEC is expected to continue addressing whether certain tokens qualify as securities. This may influence how tokens are traded, requiring platforms to register as securities exchanges or adapt their offerings to avoid securities classification.
Market Impact and Costs
Compliance with these new priorities could increase operational costs for crypto businesses, potentially stifling innovation. Smaller firms may face challenges adapting to these changes, potentially consolidating the industry around larger, more established players.
Uncertainty for Ethereum and Similar Assets
The SEC’s reluctance to classify Ethereum definitively as a security or not highlights ongoing ambiguity. This uncertainty could affect how blockchain projects develop, especially those using Ethereum-like platforms.
Will the Tides Change in Favor of Crypto?
We will have to wait and see how the industry will respond to Gary Gensler’s resignation and also go through the list of potential candidates to see if the SEC will continue the current trajectory or correct course.
Right now, we know that if things continue as is,
The SEC will not shift its focus to a digital asset-specific regulatory framework but will instead continue its current course of enforcement and supervision. Even while businesses have asked the SEC for more specific rules, the agency will not make any changes to its long-established securities laws.
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