Adapting your RIA Compliance Program for Crypto


Jackie Hallihan and Matt Calabro
Compliance Solutions Strategies

January 5, 2022

The following blog post was written by Jackie Hallihan, Executive Director of Compliance Services, and Matt Calabro, Director of Institutional Services, Compliance Solutions Strategies (CSS).1 

Estimated reading time: 5 minutes

Cryptocurrency investing represents a new and rapidly changing frontier for many registered investment advisers (RIAs). With over 80% of financial advisors having recently been asked by clients about cryptocurrencies,2 many Chief Compliance Officers may be asking themselves where to start with this new asset class.

As professionals who have worked in the compliance resources industry for over three decades, our approach to crypto is simple:

RIAs should apply the same compliance rigor to cryptocurrency as they do to every other investment, product offering or business line.

Taking this approach requires that compliance has a seat at the table from the very start, helping the firm holistically evaluate the impact of cryptocurrency investing on the firm’s business and client needs, compliance program, and regulatory requirements. While the full extent of the jurisdiction of the Securities and Exchange Commission (SEC) with respect to cryptocurrencies is uncertain, the SEC and its staff are clearly focused on the asset class. SEC staff have already provided guidance to RIAs seeking to invest in cryptocurrencies and have emphasized the need for RIAs to carefully evaluate the safety of cryptocurrency assets, satisfy their fiduciary duty, and implement controls tailored to the risks of cryptocurrencies. We trust that the path forward for RIAs investing in cryptocurrency involves adhering to the principles of fiduciary duty, including the duty of loyalty and duty of care, paired with long-established regulatory and compliance frameworks.

Adviser Compliance Package

CSS developed an “Adviser Compliance Package” exclusively for RIAs that sign up for Flourish Crypto.3 The package contains templates that you can adapt for your business, including:

  • ADV and CRS language
  • Policies and Procedures
  • Client Disclosure
  • Risk Disclosures
  • Marketing disclosures

Contact Us to learn more

When implementing a cryptocurrency offering, an RIA needs to consider the impacts across its business and ensure that it dedicates the necessary resources to addressing any changes. Among the many compliance tasks that an RIA will need to undertake in order to offer cryptocurrency investing, the following six stand out:

6 Action Items When Bringing Cryptocurrency Investing to Your Clients:

  1. Analyze whether and how cryptocurrency fits into your business and client needs, including which cryptocurrencies will be offered, client objectives and suitability, the extent of the advisory services you will provide, and the compliance implications for each. 
  2. Select service providers and conduct due diligence; in selecting a platform, consider the provider’s capabilities, reporting, integrations, and user experience; when selecting a custodian, consider best execution capabilities, safety and security, books and records, valuation practices, qualified custodian status and more. 
  3. Update disclosures for Form ADV Part 1, Part 2A, and Form CRS, as well as client, risk and marketing disclosures. 
  4. Amend your Policies and Procedures to incorporate cryptocurrency risks and controls, which may involve updating existing policies or introducing entirely new policies to cover Cryptocurrency and Digital Assets. 
  5. Stay current on regulatory and compliance developments, including speeches by the SEC staff, Risk Alerts, and any proposed rulemaking
  6. Continue evolving your program to regularly evaluate your cryptocurrency offerings, monitor service providers, revise policies and procedures and conduct regular staff training.

We believe there is a clear path forward for RIAs looking to incorporate cryptocurrency within their business. Chief Compliance Officers need to be an integral part of the process, from product development to ensuring that the RIA continues to meet its fiduciary duty, by ensuring the firm applies the same compliance rigor to cryptocurrency as they do to other initiatives.

We look forward to working with compliance teams to develop strong compliance programs to meet growing market demands in the evolving, rapidly-changing digital asset world—a world where eligible clients can have appropriate access to a carefully thought out, structured cryptocurrency strategy.

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Interested in learning more about Flourish Crypto?

This article has been prepared solely for informational purposes and does not represent investment advice, nor does it constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy. Charts and graphs provided herein are for illustrative purposes only. This article does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of Flourish Digital Assets LLC or its affiliates (collectively, “Flourish”).

There can be no assurance that any investment strategy or technique will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment, which may differ materially, and should not be relied upon as such. Potential allocations described here are not recommendations, and there is no assurance that such allocations will produce the desired results. The investment strategies, techniques or philosophies discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation.

The information provided herein is valid only for the purpose stated herein and as of the date hereof (or such other date as may be indicated herein) and no undertaking has been made to update the information, which may be superseded by subsequent market events or for other reasons.

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Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. Legal advice can only be provided by legal counsel. Before deciding to proceed with any investment, investors should review all relevant investment considerations and consult with their own advisors. Any decision to invest should be made solely in reliance upon the definitive offering documents for the investment. Flourish shall have no liability to any third party in respect of this article or any actions taken or decisions made as a consequence of the information set forth herein.

1  Jackie Hallihan was a founding partner of a CSS predecessor firm, Ascendant Compliance Management. She was also the founder of National Regulatory Services (NRS), which started the compliance resource business and was a co-founder of the National Society of Compliance Professionals (NSCP). Prior to joining CSS, Matt Calabro served in a variety of compliance and operations roles for investment managers, including as CCO to investment advisers, registered mutual funds and UCITS funds. Since joining CSS, he has also served as the outsourced CCO to investment advisers and registered mutual funds.

2 The Bitwise/ETF Trends 2021 Benchmark Survey of Financial Advisor Attitudes Toward Cryptoassets

3 Flourish Crypto is a cryptocurrency investment account through which investors can trade cryptocurrencies and maintain custody of cryptocurrencies and U.S. dollars. Custody of Flourish Crypto accounts, including all assets in the accounts, and cryptocurrency trading services are provided by Paxos Trust Company, LLC (Paxos). Website and other technology services and support for Flourish Crypto accounts are provided by Flourish Digital Assets LLC. Compliance Solutions Strategies was engaged by Flourish Digital Assets to prepare RIA compliance materials for the convenience of RIAs. These materials were prepared by CSS and not Flourish Digital Assets LLC or Paxos, and will be provided to eligible RIAs by CSS.