40 crypto-securities companies are blocked in applying for licenses in the US. What is behind the delay in FINRA?


1. In the past few months, the US Financial Industry Regulatory Authority (FINRA) has been studying the application of trading brokers from about 40 cryptocurrency companies and refused to give them a dealer license, so these companies cannot provide securities services in the United States. ;

2. Some believe that as a self-regulatory organization, FINRA delays these approvals at the request of the SEC because the SEC has not provided clear regulatory guidance;

3. Frustrated cryptocurrency startups may completely abandon the US market and focus on other jurisdictions;


According to foreign media coindesk reports, blockchain startups awaiting approval from US securities regulators are becoming restless, and there are speculations about the reasons behind the obstacles.

The US Financial Industry Regulatory Authority (FINRA), the Wall Street Self-Regulatory Organization (SRO), has been processing applications from 40 cryptocurrency companies for several months.

According to three sources, some startups have been waiting at least for a year, and some of them have waited for 14 months, but none of them have seen any movements in FINRA.

Some industry members believe that regulators have set a non-official suspension of these approvals. In this group, some believe that FINRA is awaiting clear guidance from the Securities and Exchange Commission (SEC) on how to handle cryptocurrencies under the securities laws. Others are convinced that the SEC has explicitly requested FINRA to postpone these approvals.

Despite this, others say that these delays are not a sign of reluctance by regulators, but rather because of the new assets such as cryptocurrency assets, which is likely to be inevitable. In any case, the result is that dozens of companies are on the verge of regulation, despite their efforts to introduce regulated blockchain products in the United States.

In response to a reporter's inquiry, Ray Pellecchia, director of media relations at FINRA, said:

“Proposing companies engaged in digital asset business, applying for new and complex issues, we are working hard to solve these problems.”

On the SEC side, there was no response to multiple requests for comment.

To be sure, the SEC has been actively involved in the industry, and members of the committee and staff are constantly seeking advice on a variety of issues, from custody to market manipulation issues in the encrypted community.

Despite this, nine anonymous people who spoke to CoinDesk to avoid harming their relationship with the SEC said that at least one of the FINRA and SEC agencies had been blocking the company's approval.

These individuals include legal representatives of startups trying to obtain these approvals, company employees who interact directly with the SEC, and other members of the business in those companies.

Current industry status: application blocked into normal

The encryption industry is still very young, and the number of regulated financial products is currently very limited. Industry start-ups are looking to change this situation by registering as an economist to offer some form of token-based securities services to US customers.

However, the premise is that these companies must pass the challenge of regulators.

It is reported that FINRA, a non-profit private organization, is itself regulated by the US Federal Securities Regulatory Authority (SEC).

In addition, FINRA also acts as a gatekeeper for qualified custodians and alternative trading systems (ATS), as companies wishing to become one of them must first obtain approval from a broker dealer.

American economists can buy and sell securities for themselves and their clients. Qualified custodians are entities that protect these assets, while ATS facilitates transactions.

Strictly speaking, FINRA is only responsible for approving brokers and not for qualified custodians. However, the premise of a company's registration after application is that it must be registered with a broker dealer. Although FINRA is responsible for overseeing the governance of ATS, these entities must register with the SEC.

And crypto-equity exchanges like Coinbase have long been interested in launching ATS to launch securities tokens for customers (or at least express tokens for securities).

Similarly, an exchange may become a qualified custodian, storing cryptographic assets on behalf of institutional investors. Exchanges like CoinBase, Gemini, and BitGo are regulated and regulated custodians in the US. However, CoinBase and Gemini are licensed through the New York Financial Services Department, while BitGo is licensed through the South Dakota Banking Department. This means that none of these companies have approved FINRA.

Like ATS, startups want to hold securities tokens or tokenized securities for institutional clients by becoming qualified custodians.

But even the approval of the pre-requisite brokers is hard to get for them, at least for now.

What is the real reason for the approval to be blocked?

A lawyer on behalf of a client company has repeatedly discussed with the Securities and Exchange Commission (SEC) and the Financial Supervisory Authority (FINRA), which he said is “frustrating” because this delay basically prevented seeking to follow A company that conducts business in the United States.

Lawyers pointed out that in order to give reasons for refusal, the SEC often expressed concern about other fraudulent practices in market manipulation and encryption.

He told reporters:

"On the one hand, the US Securities and Exchange Commission (SEC) complains about market manipulation and bad behavior, but (on the other hand) they won't let good actors come in to clean up the problem.

We are at this stage, we have provided everything we can provide… they have not asked us to provide anything else. They just said that they could not approve because they were not satisfied with this asset class.

It is reported that this client company is now seeking to conduct business outside the United States.

“It’s really a shame that we’ve been proud of [doing business within the limits of the United States],” the lawyer said. “But if we have to exclude American citizens and American companies and share our skills abroad, then this is us. Do it."

Just last September, Joyce Lai from Consensys publicly stated that these regions may be more attractive to cryptocurrencies than the US because of the clearer regulations in other jurisdictions.

Lai told CoinDesk that regulatory inaction may hinder the start-up of start-ups.

Last week, she said in an interview: "Regulatory clarification or lack of clarification is a huge obstacle, which may put a heavy burden on the founders (and potential funding problems)."

Who is the real boss?

Despite the possibility, FINRA refused to approve most cryptocurrency economists for their own will, but some people told reporters that they believed that this self-regulatory organization was acting at the request of the SEC.

Justin D'Elia, a partner from Duane Morris LLP, said that the SEC has the legal right to reject any rules proposed by FINRA, although the latter usually allows for self-employment.

Another lawyer who spoke to CoinDesk believes that FINRA is specifically waiting for the guidance of the SEC. The person said: "The SEC set the tone."

It is reported that the SEC has issued guidance in the form of a speech and outlined how to apply the securities law to tokens. However, to date, all issued statements are not legally binding and some are even contradictory .

A senior executive who did not directly affect the company was said to:

“Many times, FINRA is a member of the system that slows down developments, but in this case, I heard that FINRA is waiting for clarification from the SEC so that they can move some of them forward, in fact they are working with people. Very cooperative."

One consideration that may allow the SEC and the SEC to suspend these approvals is that the blockchain platform allows anyone to trade private equity securities, and in the past, only certain certified investors were allowed access to those securities.

One executive at another company said: "We are blurring the line between private non-trading instruments and digital securities."

Unknown regulatory area

However, in fact, some companies have successfully obtained approvals, which has led some to doubt whether there is an extension. Another explanation is that the delay in FINRA may only stem from the unique regulatory issues currently facing digital assets.

Juan Hernandez, CEO and founder of the open trading platform OpenFinance, told reporters that the FINRA action is indeed slow, but this does not necessarily mean that there are any orders that impede approval.

It is reported that OpenFinance, tZERO, SharesPost and Templum Markets, which were approved for listing digital assets last year, mean they are ahead of other economic companies still awaiting approval.

SeedInvest, an equity crowdfunding platform acquired by Circle Digital Entrepreneurship Circle last year, is also an ATS, although the platform is currently unable to trade cryptocurrencies (including securities tokens).

According to the regulations and operating procedures of the US Financial Industry Regulatory Authority and the US Securities and Exchange Commission, even if a company is allowed to offer certain securities transactions after its ATS application is approved, there are restrictions. In other words, the company cannot provide all possible transaction guarantees after receiving the ATS license.

Hernandez described the process of obtaining approval from ATS, broker dealers or qualified custodians as a lengthy process, but it was not insurmountable. He said:

"Things take longer, but that doesn't mean freezing or stopping."

D'Elia, a longtime securities attorney, told reporters that FINRA usually checks the applicant's owner, source of funds, net capital, who is the customer base, how the applicant will target the customer base, and what experience the client has.

He explained that the fact that cryptocurrency brokers are online means that there will be a wider audience than the average situation, "I think this makes FINRA a bit more cautious," he said.

D'Elia said that although the FINRA guidelines give nominally a six-month deadline to approve or disapprove applications, they can also extend the period. If any part of the application is incomplete or incorrectly filled, the deadline will be further blurred.

Hernandez added that even the incomplete details of the documents can lead to delays.

An executive talking to CoinDesk believes that the status quo will change soon.

He said: "The industry is getting more and more pressure, not only from applicants, but also from those who want to do ETFs, or those who want to do ATSS or similar Blockstack Reg A."

"All these things are under pressure… I believe [SEC] will have no choice but to stand up. This is a matter of time, not an if, but it will be a very big time issue. ”

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