SEC, FINRA Double Down on Warning of Retirement Account Crypto Risk

US financial regulators on Tuesday highlighted crypto as a risky asset in self-directed IRAs that may lack proper disclosures and ample liquidity


TierneyMJ/ modified by Blockworks


US regulators have reiterated warnings on their perceived risks of adding cryptocurrencies to retirement accounts. 

The SEC and the Financial Industry Regulatory Authority (FINRA) on Tuesday again cautioned investors allocating to alternative assets in self-directed individual retirement accounts (IRAs), highlighting crypto as a risk.

“Crypto assets may be securities that are offered without SEC registration or a valid exemption from registration, and may not be accompanied by complete or accurate information to aid investors in making informed decisions,” regulators wrote.

In making their case against crypto, regulators additionally alluded to liquidity concerns centered around digital assets. 

Many crypto trading platforms brand their entities as “exchanges” — which could contribute to incorrect investor impressions that those market makers have registered with the SEC, the warning said. 

Crypto exposures in retirement accounts has been a touchy subject of late. That’s in part due to the underperformance of Grayscale Bitcoin Trust (GBTC), as well as write-offs by pension funds invested in failed crypto firms Celsius and FTX.

Read More: Your recap on all things GBTC as takeover attempts mount

Tuesday’s regulatory guidance focuses on self-directed IRAs, plans that allow investment in more assets than other types of IRAs — such as real estate, private placement securities, precious metals and other commodities. These differ from 401(k) plans, which are employer-sponsored retirement savings plans that give employees a choice of investment options, typically mutual funds. 

But warnings about crypto investments have not been isolated to the self-directed retirement space. 

The Department of Labor said in March 2022 guidelines that the Employee Benefits Security Administration (EBSA) expects to investigate 401(k) plans that offer participant investments in cryptocurrencies and related products. 

Those guidelines have “chilled interest” by plan sponsors and fiduciaries in direct crypto investments for the time being, Castle Funds Director Dan Hoover told Blockworks last week. 

Still, Fidelity said last April that the financial services company would give employers the option to offer bitcoin exposure to employees in their core 401(k) investment lineup. A Fidelity previously said it was set to launch its first plan sponsor clients by the end of 2022. 

The company had $9.6 trillion in assets under administration, as of Sept. 30, and manages employee benefit programs for nearly 23,000 businesses. 

A Fidelity spokesperson did not immediately comment on the demand for crypto exposure in retirement portfolios in the wake of FTX’s crash in November, which shook the industry.

“We are proud of the Digital Assets Account as a responsible solution to meet the demands of mainstream interest,” a firm representative told Blockworks in October. “In fact, client interest has not only been strong, but also spans across a wide range of industries and company sizes.”

Senators, including Elizabeth Warren, D-Mass., have repeatedly urged Fidelity — as recently as November — to stop its 401(k) sponsor partners from offering bitcoin exposure.

Fidelity has said it engages in “ongoing dialogue with regulators and policymakers” to ensure consumer protections and educational guidance for plan sponsors.

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