Join NexChange - the professional
network for the financial services
industry - and receive a free one-
year subscription to Forbes
SEC Official Issues Warning on Cryptocurrency Investment Funds
An official at the Securities and Exchange Commission signaled a warning last week about new investment funds that hold cryptocurrency – and whether investors are armed with enough information to safely put money in them.
Speaking last Thursday at the ICI Securities Law Developments Conference in Washington, D.C., Dalia Blass, the SEC’s director for the division of investment management, addressed the “investor experience” within the asset management industry, specifically whether information is being distributed to them in the most optimal way possible. Blass talked about the ways in which innovations in technology have provided a new set of challenges for the investment industry.
We also cannot ignore that it is the 21st century. As technology improves and our markets evolve, we need, as best as we can, to make sure that our approach to disclosure keeps pace. When I want to know something, I pull out my phone. A new generation that has never known a world without an internet is joining the ranks of investors. They may go through the entire investment process without talking to a person. That is great, but if we want them to make use of our required disclosures, we have a problem – 70-page documents are hard to read on a smartphone. We also have a tremendous opportunity – maybe technology could open the door to more interactive and personalized disclosure. Maybe disclosure could be inviting rather than intimidating.
Blass then addressed the rise of funds holding cryptocurrencies and whether investors are really being provided adequate information before they invest in these funds.
We also continue to think about new innovations in asset management. For example, we have seen several filings for registered funds that would hold cryptocurrency. As with any new product, there are questions to ask. For example, would retail investors have sufficient information to consider these products and to understand the risks? When thinking about cryptocurrencies and other blockchain offerings as fund assets, are differences in their features important? How would these funds fit into the existing regulatory scheme? What regulatory structure or structures apply to the market for the underlying instrument? We will be discussing these questions with you as we work through these filings.
Blass also indicated that while investors may not be provided with enough information, there are other instances in which there might be too much unnecessary information.
“Perhaps there are opportunities to take advantage of new insights into design and learning,” she said. “It may also mean reevaluating areas where we see legalese, redundancies and lengthy discussions that are more defensive than informative.”
Photo: Getty iStock