Dual registrant regulatory roundup - February 2025

The SEC Launches a New Crypto Task Force 

• On January 21, SEC Acting Chairman Mark T. Uyeda announced the formation of a crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets. The task force will be led by SEC Commissioner Hester Peirce.
• The press release announcing the formation of the task force was critical of the SEC’s approach under former SEC Chair Gary Gensler, noting that the SEC’s reliance on “enforcement actions to regulate crypto retroactively and reactively” led to “confusion about what is legal,” which created “an environment hostile to innovation and conducive to fraud.” According to the press release, the task force will seek to help the SEC “draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.”  

President Trump Issues an Executive Order Regarding Crypto

• On January 23, President Trump signed an Executive Order to establish regulatory clarity for digital financial technology. The Executive Order established a Presidential Working Group on Digital Asset Markets, which will be chaired by the White House AI & Crypto Czar and include the Secretary of the Treasury, the Chairman of the SEC, and the heads of other relevant departments and agencies. Coupled with the SEC’s formation of a new “Crypto Task Force” (discussed above), this Executive Order signals the new administration’s change in approach when it comes to crypto.  

FINRA Releases its 2025 Annual Regulatory Oversight Report

• On January 28, FINRA released its Annual Regulatory Oversight Report (the Report), which provides insight into FINRA’s Member Supervision, Market Regulation, and Enforcement programs. The FINRA Report builds upon similar reports issued between 2021 and 2024 both substantively and stylistically by adding new topics denoted “New for 2025” and new material to existing sections where appropriate. The below represents just a small window into FINRA’s Report. Firms are encouraged to review the full report for FINRA’s views on additional topics like cybersecurity, anti-money laundering, Form CRS, and market integrity.
• FINRA adds two entirely new sections to this year’s version of the Report—one titled “Third-Party Risk Landscape” and the other “Extended Hours Trading.” Focusing on the new “Third-Party Risk Landscape” section, FINRA notes that it has observed an increase in cyberattacks and service outages at third-party vendors over the past several years. The Report notes several “Effective Practices” for firms’ third-party vendor risk management programs, including, among other things, establishing supervisory controls over a vendor’s business impact, evaluating how the firm can meet its regulatory obligations if the vendor fails to perform the outsourced activity, and asking potential third-party vendors how (or if) they incorporate Gen AI into their products or services.
• The Report adds new content to the Report focused on annuities and, more particularly, registered index-linked annuities (RILAs). Among other things, the Report refers to RILAs as an “emerging trend,” describes them as a “complex financial product,” and notes several features of RILAs that can “impact [their] performance.” The Report then provides several specific Findings and Effective Practices regarding annuities.
• FINRA made several changes to its section on cryptocurrency, which may reveal a shift in how FINRA defines its role concerning crypto assets. In last year’s report, FINRA urged firms to inform FINRA if the firm or its affiliates were involved or intended to engage in activities related to crypto assets, even those not classified as securities. In contrast, this year’s Report emphasizes that FINRA only has jurisdiction over member firms and their associated persons, by way of federal securities laws and FINRA rules generally applicable to member firm activities involving crypto assets that are securities.
• FINRA also adds new material to its Regulation Best Interest (Reg BI) section. The new material touches on account selection practices (brokerage vs. advisory account), recommendations of complex products, and disclosure of material facts related to conflicts of interest.

SEC Rescinds Staff Accounting Bulletin Related to Crypto

• Effective January 30, the SEC rescinded Staff Accounting Bulletin 121 (SAB 121), which previously required financial institutions to report client crypto assets held in custody as balance sheet liabilities. The new guidance, Staff Accounting Bulletin 122 (SAB 122), advises entities to assess and recognize liabilities related to safeguarding crypto assets based on existing Financial Accounting Standards Board (FASB) and International Accounting Standards (IAS) guidance.
• SAB 121 had faced criticism from the crypto industry and some members of Congress for creating unnecessary regulatory burdens and risks for financial institutions. The rescission of SAB 121 may open the door for more financial institutions to become crypto custodians.