By Elena Eyber, J.D.
NASAA wrote a letter in response to the U.S. Department of the Treasury’s July 8, 2022, request for comment regarding President Biden’s Executive Order No. 14067, Ensuring Responsible Development of Digital Assets. NASAA supports innovations in investment products but also believes in the importance of federal regulation of digital assets to protect investors from being harmed. NASAA also will be advocating for appropriate federal legislation relating to digital assets before Congress.
In its letter, NASAA identified investments tied to digital assets as one of the top threats facing retail investors. As the adoption of digital assets grows, the potential for fraud also increases. NASAA stressed that the digital asset businesses need to be brought more into registration and compliance. In a recent three-year period, NASAA’s U.S. member securities regulators initiated over 480 investigations and brought more than 145 enforcement actions involving digital assets. A common theme, even among digital asset businesses not intending to defraud, is that they have gone to the investing public without first determining their regulatory obligations. While NASAA members are responding through enforcement actions and investor education, NASAA believes the dynamic of digital asset businesses ignoring their regulatory obligations needs to change.
One area of particular concern to NASAA is the placement of digital assets into self-directed individual retirement accounts (SDIRAs). SDIRAs allow individuals to invest their own tax deferred retirement funds in various types of “alternative” investments (such as real estate or privately held stock) that cannot be held in more traditional retirement accounts. Some SDIRAs permit investments in cryptocurrencies and other types of digital assets. Moreover, SDIRA custodians generally do not perform the same services or have the same legal duties and responsibilities as traditional custodians, which puts investors at greater risk. SDIRAs are thus one discrete area in which current regulatory protections could be strengthened to better protect investors with respect to digital asset investments, according to NASAA.