The U.S. Financial Industry Regulatory Authority highlighted risks associated with “complex” market products in a recent statement.
The U.S. brokerage firms and exchanges regulator also pointed out the legal obligations that come with such a category of products to ensure adequate protection for retail investors. While there is no standard definition of “complex” products, FINRA has described it ‘as a product with features that may make it difficult for a retail investor to understand the essential characteristics of the product and its risks.’
FINRA wrote that “important regulatory concerns arise when investors trade complex products without understanding their unique characteristics and risks.”
Therefore, the regulator considers crypto mutual funds and ETFs futures in this category. Essentially because the underlying product belongs to a complex asset class, and the fund adds another layer of complexity by tracking a futures contract.
Crypto investors need guidance
FINRA said, “These concerns may be heightened when a retail customer is accessing these products through a self-directed platform and without the assistance of a financial professional, who may be in a position to explain the key features and risks of the product to the retail investor.”
We can recall that ProShares had released the market’s first Bitcoin Strategy futures ETF (BITO) back in October 2021. After a recording-breaking debut, BITO also made way for new crypto launches and a broader wave of funds. Just last week, ProShares expanded to a Metaverse ETF. And just today, CME Group announced options on Micro Bitcoin and Micro Ether futures.
And with the array of “complex” offerings, FINRA noted in the release that it is seeking comments till May 9 to airtight the current regulatory framework.
Attorney Thomas Gorman, who was formerly with the SEC, told CNBC, “The message is, you can’t let people go on your platform and buy whatever they want. Even the platforms should have a duty to investors, even if they are not strictly financial advisors with a fiduciary obligation.”
With that being said, President Biden recently signed an Executive Order to regulate the crypto sector in the U.S. While the order outlines the first government-wide strategy to protect investors and the financial stability of the U.S. markets, OECD is working on a wider framework.
Last week, the intergovernmental organization released a technical consultation paper for its member nation, and argued for crypto-asset reporting requirements for global transparency.
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