The co-director of the United States Securities and Exchanges Commission (SEC)’s Division of Enforcement, Stephanie Avakian, has outlined the mission and enforcement aims of the regulator’s recently formed Cyber Unit and Retail Strategy Task Force. Speaking at a recent Securities Enforcement Forum, the co-director has detailed the objectives of the new unit, including issues specifically pertaining to cryptocurrency.
“The Mission of the Enforcement Division [Is] to Protect Investors”
Mrs. Avakian stated that the SEC wanted to take the time to address the current priorities of the Enforcement Division and discuss the mandates governing the SEC’s new Retail Strategy Task Force and Cyber Unit.
The co-director stated that the greatest regulatory focus for the institution is “always going to be focused on retail investors.” Mrs. Avakian stated that retail investors “are often the most vulnerable market participants who are most in need of our protection.”
Mrs. Avakian expressed the SEC’s belief that “there is more” the regulator “can do to align [its] resources” for the “key priorities” of “retail and cyber,” asserting that “some structural change and strategic focus will enable us to better fulfill our investor protection mission.”
Issues Pertaining to Cryptocurrencies and Distributed Ledger Technology Will Fall Under the Purview of the SEC’s Cyber Unit
The co-director stated that the severity of the threat posed by cyber issues warrants the creation of a dedicated Cyber Unit, despite the SEC’s Market Abuse Unit currently investigating many cases involving cybersecurity considerations.
The Cyber Unit is described as “the first new specialized unit since… the [Enforcement] Division’s reorganization in 2010.” Mrs. Avakian stated that “the need for the Cyber Unit arises in large part from the increasing frequency with which we are seeing cyber-related misconduct affecting the securities markets, and also the increasing complexity of these cases.” The co-director stated that the “cybersecurity threats come from a wide range of sources,” however, “the work of these actors in many instances has been facilitated by easy access to the dark web marketplace as well as the use of digital currency, both of which make it harder to track the flow of funds involved in cyber violations.”
Mrs. Avakian stated that the Cyber Unit will be tasked with regulating emergent issues relating to distributed ledger technology. The co-director stated that “issues presented by blockchain technology warrant a consistent, thoughtful approach – and the best way to do that is to centralize the expertise and the focus in a single unit.” The co-director described blockchain technology as potentially providing a “legitimate way of raising capital”, however, stated that “the popular appeal of virtual currency and blockchain technology can be an attractive vehicle for fraudulent conduct.” The SEC hopes that “creating a permanent structure for the consideration of these issues within the Cyber Unit will ensure continued focus on protecting both investors and market integrity in this space.”
The co-director has outlined key enforcement aims for the Cyber Unit, including several which pertain to cryptocurrencies and initial coin offerings. Mrs. Avakian stated that an “area of potential enforcement interest includes cases where there may be a cyber-related disclosure failure by a public company,” adding that the SEC “ha[s] not yet brought a case in this space.” Key areas of interest include “risk factor disclosures”, and “management discussion and analysis,” with the SEC emphasizing that “it is frequently necessary to provide meaningful and timely disclosures regarding cyber risks and incidents… in an era where nearly every company is dependent on computer systems to operate their business.”
The Retail Strategy Task Force “Will Not Generally Be Responsible for Conducting Investigations”
Mrs. Avakian stated that the recently established Retail Strategy Task Force “will look at the many ways that retail investors intersect with the securities markets and look for widespread misconduct.” The Task Force will seek to draw from the past experiences of the SEC “to identify strategies that have worked well,” particularly regarding cases in which “data analytics and technology” is employed.
Mrs. Avakian stated that “a critical part of investor protections is education,” adding that “part of the Task Force’s mandate will be to focus on investor outreach.” The co-director concluded that “an educated investor is an empowered investor, and our goal is to empower investors so that they are able to make informed investment decisions.”
Mrs. Avakian also reiterated that “initial coin offerings… are subject to the requirements of the federal securities laws.”
Do you think that the formulation of the SEC’s Cyber Unit comprises an appropriate response to the regulatory challenges posed by cryptocurrency technology? Share your thoughts in the comments section below!
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