The sec's war on crypto is a land grab Of the most Brazen kind it's proven Incredibly unpopular not only with the Crypto community of course but also with Other Federal Regulators judges Lawmakers and even some of the sec's own Commissioners to keep up the ACT SEC Chair Gary gendler needs all the support He can get you know someone to stand in The audience and clap when he calls Crypt digital asset Securities someone To stand behind his shoulder and mutter Yeah you tell them boss so today we Investigate the sec's trusty sidekick Finra who they are what they do and how They prop up the commission's dubious Claims to jurisdiction over crypto stay Tuned finra is the financial industry Regulatory Authority the name makes it Sound like it's at the top of the Regulatory food chain overseeing all of Wall Street but this is not the case Finra is a self-regulatory organization With one job overseeing Securities Broker dealers who serve retail Investors now for reference Brokers are The intermediaries who execute trades of Securities like stocks bonds and options On behalf of clients dealers meanwhile Are firms who trade Securities on their Own behalf and you'll often hear the Catchall term broker dealer which can Refer to firms playing either or both of These roles in the US Federal Securities
Laws prevent retail investors from Buying and selling securities directly Instead they have to go through a Registered Securities broker as only Broker dealers can transact on Securities exchanges all brokers who Serve retail investors are required to Register as members of finra now as a Self-regulatory organization finra's Jurisdiction is limited to its own Members for these firms finra writes Examines for and enforces its own rules In addition to enforcing compliance with Federal Securities laws and if you're Wondering guy I thought this was a Crypto Channel why are you telling me This well that's a good question as a Securities industry regulator finra has No business taking up space on this Channel and believe me we would just Love to forget all about them but the Thing is finra is becoming obsessed with Crypto and not in a good way despite Having no regulatory authority over Non-securities assets finra is trying to Rebrand as a crypto regulator you see Finra is a creation of the Securities And Exchange Commission and they're Doing their best to play sidekick in the Commission's war on crypto to be clear Finra isn't the one knocking on doors And cracking skulls that's ger Grey's Enforcement division at the SEC finra CEO Robert cook explained his
Organization's place in the regulatory Food chain thus quote we're not looking To regulate or fundamentally change the Regulatory structure that's above our Pay grade that's the SEC other Federal Regulators Congress figuring out what is Sick the appropriate rules of the road Here well it was nice of cook to mention Other Federal Regulators in Congress but The thing is the SEC unilaterally Decided what the rules of the road are It did so over the complaints of Congress and other Federal Regulators Namely the commodity Futures Trading Commission or cftc with whom the SEC has A longstanding Turf War over crypto Regulation and this is where finra comes In its job is to launder the sec's claim That almost all cryptos are securities So it appears that someone outside of Secq actually agrees fin plays the role Of trusty sidekick in two ways the first Is by parting the view of the SEC in its Own Communications in doing so finra Studiously ignores the elephant in the Room it treats The sec's Stance as a Consensus position rather than one whose Legitimacy is openly doubted in the House senate cftc federal courts and of Course the crypto industry not to Mention by some of the sec's own Commissioners the second way that finra Plays Sidekick is by gatekeeping the Special permissions that are required
For crypto exchanges to register and Operate as Securities exchanges as the SEC insists they do spoiler alert it's Impossible for crypto firms to register And operate in compliance with Securities laws finra helps the SEC keep Up the pretense that there is a path to Registration and compliance but only one Company has accomplished this and it is Incredibly sus more on that later but First if you're enjoying this video Smash the like button to give it a boost And make sure you're subscribed and have Your bell notifications turned on so you Can catch our next upload before anyone Else hey everyone sorry to interrupt the Video but I just want to very quickly Tell you about the coin Bureau deals Page this is the place where we put Together all the amazing deals and Promos that we're able to offer you guys Exclusively as viewers of this channel Head on over and you will find such Things as discounts on Hardware wallets Some seriously impressive trading feed Dis discs on some of the best exchanges As well as some frankly mindboggling Signup bonuses for some of those Exchanges too the link is down below Check it out when you have a moment Thank me later and now back to the video Now finra first dipped its toes into Crypto in 2018 when it began a long Running series of posts on its website
Entitled finra encourages firms to Notify finra if they engage in Activities related to digital assets This request is a little odd because Finra's member firms are mostly Securities brokers who can't legally Handle crypto on behalf of their retail Customers current SEC guidance states That broker dealers who trade quote Crypto asset Securities must limit their Business activities solely to crypto Asset Securities this means that broker Dealers can't transact crypto unless They refrain from Trading stocks bonds Options or Bitcoin as BT C is the sole Crypto definitely not considered a Security by the SEC but stocks bonds and Options are the bread and butter of Broker dealers they are what the word Security generally refers to to transact In so-called crypto asset Securities Broker dealers would have to sever their Traditional lines of business which is Not exactly a recipe for success and What exactly is a crypto asset security Anyway SEC chair Gary Gensler claims That the quote vast majority of cryptos Are securities but SEC rules and Guidance largely prevent cryptos from Being registered as Securities for Example registered Securities must make Public current information about the Issuers officers and board of directors Business activities and audited
Financial statements cryptos tend not to Have any of these things and it's often Not clear who counts as the issuer to Date just nine cryptos have been Registered as Securities of these three No longer exist and one is no longer Registered as a security the remaining Five are mostly obscure low caps with Virtually no trading volume so can you Imagine broker dealers giving up stocks Bonds and options just to be able to Trade five obscure crypto Securities on Behalf of their retail clients any dgen In the market for one of these cryptos Is not going to pick up the phone and Call a Securities broker they're going To use a sex or a DEX predictably the Vast majority of finra's member firms Are securities brokers who trade stocks Bonds and options and not these five Cryptos as such it's odd for finra to Repeatedly call on them to report crypto Related activity but unfortunately it's Not just odd it's an extraordinary Overreach finra asks member firms to Report not only their own activity but Also that of their quote Associated Firms or Affiliates involving digital Assets of any kind in doing so finra Casts an extremely wide net it's hard to Overstate just how expansive this Request is from employees of finr firms Who dabble in Bitcoin in their spare Time to any Affiliated non-f remember
Company or individual engaging in crypto Related activities all are asked to Report to finra such an expansive Request exceeds the scope intent and Language of finra's own reporting rules And although finra cannot force its Member firms to submit these reports the Vast majority of broker dealers are Small firms who are precariously Beholden to finra perhaps as a result of This anecdotal accounts suggest that Broker dealers are indeed burning time And resources entertaining Fin's Requests According to one firsthand account quote Broker dealers are increasingly required To dedicate time and resources to Navigate intrusive and often nonsensical Finra crypto asset regulatory inquiries These inquiries are often focused on Products or services that are not even Offered by the finra member itself this Account described finra's crypto Snooping as quote an outsourced Self-serving educational program of Sorts paid for and imposed on finra Members by regulatory Fiat and finra's Data collection Drive is accelerating in 2023 it sent a questionnaire to around 600 member firms who were suspected of Either engaging in crypto related Activity or having some connection to a Person or company engaging in crypto Related activity a year on finra has
Shared some of its findings but I'll Warn you they're pretty opaque in a post Entitled Fina provides update on member Firms crypto asset activities it says That the questionnaire helped it to Identify 390 member firms who are either Engaged in crypto related activity or Have some kind of quote touch point with A company or person who is but as finra Points out quote many of the touch Points identified are indirect in that They relate to activity being conducted By Associated persons Affiliates or Parent companies rather than directly by Member firms and you might expect finra To to explain how many of the 390 listed Firms were included because they engaged In crypto related activity directly and How many were included because they had Some connection to someone who did However finra doesn't provide this Information so the composition of this List is left up to our imagination but Okay let's just go with it now what kind Of activities are represented on this List well the activities observed by Finra include providing the Infrastructure for institutional clients To trade crypto OTC triing the use of Permissioned blockchains affiliate Marketing and introducing institutional Clients to third parties who provide Crypto custody Investment Banking and Advisory services this is a list of
Activities of Institutions serving other Institutions and notably it doesn't Include directly transacting crypto by Finra member firms as such none of this Activity Falls within finra's mandate Which is to over see Securities Brokers Serving retail investors perhaps this is Why finra doesn't explain why it's Monitoring these activities finra also Doesn't say how many member firms were Partaking in each type of activity it Just mentions that it has detected these Activities with no indication of their Scale well that is except for one finra Reports that quote one member firm has Been approved to custody crypto asset Securities and this leads us to finra's Second responsibility as SEC sidekick This is to maintain the pretense that Crypto firms have a viable path to Complying with existing Securities laws And regulations now I'll tell you all About that one member firm in a moment But first it's important to understand Just how faral this all is firstly Registered Securities exchanges can only Trade Securities they therefore rely on Crypto projects to register their coin Or token as a security to have anything To list or trade but as I explained Earlier SEC rules and guidance make it Impossible to register most cryptos as Securities the way cryptos are issued And function can't comply with the
Existing disclosure requirements for Registered Securities and the SEC has Not provided any framework for how these Requirements could be coherently applied To crypto if a crypto exchange Reg Registered as a Securities Exchange It Could only list the five registered Crypto Securities that do exist as a Result nobody would use it and it would Be forced out of operation immediately Secondly only registered broker dealers Can buy and sell Securities this means That under Securities laws you could not Use your own crypto to conduct Transactions on a blockchain nor could You buy and sell crypto on exchanges all Transactions would have to be rooted Through a broker however as we saw Earlier there are virtually no Brokers Specializing in crypto Securities this Means that even if a crypto exchange was Able to register as a Securities Exchange there would be no one able to Legally trade on it thirdly Federal Securities laws require customer Securities to be custodi by a quote Qualified custodian and in a quote good Control location such as a depository Bank or clearing agency in Securities Markets these qualified custodial Services are typically provided by Broker dealers and Banks Securities Exchanges don't meet the requirements to Become a qualified custodian so they are
Not able to custody customer assets Meanwhile Federal Banking regulator Guidance makes it effectively impossible For banks to provide custodial services For crypto this leaves broker dealers But the problem there is crypto wallets Do not fit the definition of a good Control a also the qualified custodian Is required to have exclusive physical Possession or control of the customer Securities this means that the use of Multisig wallets or other best practices For custody in crypto violate SEC Custody rules so clearly the regulatory Framework for Securities is incompatible With crypto on many levels to fix this Would mean a significant overhaul However the SEC rejects this and insists That there is no need for change for Example in April 2023 Gary gendler Called on crypto exchanges to quote come In and register as Securities exchanges Knowing full well that this is not Possible for the reasons I just Explained now when the crypto industry Points out that this is impossible the SEC needs to have a response some basis For saying you're wrong there is a clear Pathway for you but you're refusing to Take it and this is where finra comes Back in in 2020 the SEC created a new Category of broker dealer called a Special purpose broker dealer or spbd Spbs are Exempted from the regulations
That prevent traditional broker dealers From custody in crypto they are allowed To for example use multisig wallets so Spbs have the unique ability to both Transact crypto Securities and custody Them on behalf of their clients as the Regulator for broker dealers it is finra Who is responsible for granting spbd Status to broker dealers so I hear you Ask how many spds have been approved by Finra well you may recall that finra Stated on its website that quote one Member firm has been approved to custody Crypto asset Securities so who could it Be maybe coinbase no introducing Promethium the only spbd to have been Approved by finra since the category was First invented 4 years ago now Promethium is fascinating it does not Purport to have any business model or Purpose other than obeying the SEC and Finra as loudly as possible it does not Pretend to have any other value Proposition as such it looks more like a Political statement than a business this Begins to make sense when you look at Promethium board it includes a chief Regulatory officer whose previous job Was a 14year stin at finra a chief Compliance officer who is a former SEC Attorney and Veteran Securities lawyer Martin Kaplan as chairman now kaplan's Website boasts that he has quote an Established reputation and substantial
And regular contact with the SEC and Finra kaplan's two sons meanwhile serve As promethium co-ceos of the two Aaron Kaplan serves as public face and Spokesperson now last June Aaron was in Invited to testify before a Congressional hearing on crypto Regulation and he really stole the show Kaplan used his time to attack crypto Exchanges sing the Praises of the SEC And insist that no new crypto Regulations could improve on the Existing Federal Securities laws in the Official transcript of his testimony There is one sentence in bold quote There is a compliant path forward for Crypto in the United States that the SEC Has clearly laid out Kaplan then told The house that promethium would not be Able to trade BTC or eth because they Are not Securities actually at the time Of making this video promethium has Never traded anything although the Company says it has been in development Since 2017 it is still not operational now Things went quiet for a while after that Congressional hearing and you could be Forgiven for forgetting all about this Strange company but recently promethium Resurfaced in the news when it announced That it would be trading uni and ARB It's easy to laugh at promethium but This news was a reminder that there's a
Good reason to take it seriously this is Because the SEC has given it a free pass To determine which cryptos are Securities and which aren't under the Sec's rules an spbd is not required to Even consult with the SEC when deciding Whether an asset it wants to trade or Custody qualifies as a security the SEC Merely says that an spb BD won't face Any enforcement action so long as it Maintains its own system for determining Whether a digital asset is a security Pursuant to a registration statement or An exemption from such registration this Is wild because spbs can only handle Cryptos that are considered Securities So they have a financial interest in Classifying as many cryptos as Securities as possible and almost total Freedom to do this at will case in point Back in May promethium laun a crypto Custody service which treated eth as a Security it's almost as if the firm was Trying to stop the approval of the spot Ethereum ETFs with this declaration the Approvals happened a few days later Confirming that eth is actually a Commodity meanwhile security status is a Matter of life or death for crypto in The US as evidenced by the many years And likely billions of dollars spent by The SEC and the crypto industry Litigating this very issue now the Unpopularity of the sec's war on crypto
Has visibly weakened the commission's Hand and this was evidenced by its U-turns over the spot Bitcoin and Ethereum ETFs and the withdrawal of Allegations against specific cryptos in The binance and coinbase Suits but while The SEC and the crypto industry clash in Court in the media and in Washington Over the security non-security debate Finra is able to quietly appoint spbs Who can unilaterally declare security Status without any legal scrutiny Transition period or Clarity regarding The regulatory consequences of this Determination and sure so far there is Only one spbd and it's not like it's Going to flip binance anytime soon but The fact that this strangely powerful Category even exists is deeply Concerning so we'll be keeping a BDI on Finra as it continues its intrusion into Crypto regulation because who knows the Next time Gary gendler needs political Backup more spbd might just appear on The Scene right that's all for today folks Smash the like if you learned something And let us know what you think about Promethium in the comments if you're Interested in learning more about Specific altcoins by way of our Unrivaled Deep dive reviews then why not Join the coin Bureau Club we've so far Covered dozens of projects for our
Members who also get to vote on what They like us to review in the future There's an exclusive members Discord Where you'll find the best community in All of crypto and a whole lot more Besides the link is down in the Description thank you for watching and I Will see you next time this is guy over And out [Music]
