Russ Grimaldi, Chief Compliance Officer, Horizon Kinetics.

The barriers to entry and the required infrastructure that needs to be in place for both the liquid and venture strategies can be complicated and require investment, said an expert panel discussion feature in a Clear Path Analysis report.

This was especially around the case of what fund operators need to know for integrating digital assets into product offerings as well as how they work with tech among their internal processes. However, it could still be worth the effort says, Russ Grimaldi, Chief Compliance Officer, Horizon Kinetics.

"Overall, the landscape has changed in that now, registered investment advisers must consider digital assets and cryptocurrencies as it relates to their policies and procedures.”

In Clear Path Analysis’s recent report, Fund Technology, Data & Operations, North America 2022, industry leaders from companies including Capco, Lamar Associates, and Pzena Investment Management look at the best ways fund operators can lean into digitisation and learn to work with it as remote and hybrid employment practices continue to flourish.

“Overall, the landscape has changed in that now, registered investment advisers must consider digital assets and cryptocurrencies as it relates to their policies and procedures,” said Grimaldi on the barrier to entry around venture strategies.

“For example, a firm must ask itself, under our Code of Ethics, do employees need to report on and pre-clear these securities?” he said. “Bitcoin and Ethereum might well be the outliers in that the US Securities and Exchange Commission (SEC) may agree they aren’t securities under relevant securities laws.”

Grimaldi added that, however, as an industry, they know that some of the Initial Coin Offering (ICO) tokens are considered securities and other cryptos might be considered securities. “So, if your employees are trading in these things, you [must] consider, do they need to pre-clear and report on these holdings. This is regardless of whether the firm is engaged in purchasing cryptocurrencies in client accounts,” he explained. “And of course, you want to take a conservative approach when you look at them.”

Changing workplaces

There is also the matter of monitoring transactions, which has changed with new working practices.

“The SEC is keen on looking at this area to ensure compliance with books and records policies and procedures. Major firms might have to give their employees cell phones, which is something that we may have to consider,”

In light of the remote working environment, Grimaldi said that it was an interesting time in the workplace for this and that all companies should be monitoring this trend closely. One area where companies will need to modernise practices and spend more time engaging in, for example, is text message retention by staff members, which could prove a tricky area to check effectively. “The SEC is keen on looking at this area to ensure compliance with books and records policies and procedures. Major firms might have to give their employees cell phones, which is something that we may have to consider,” he explained. Firms such as Credit Suisse have already been hit by this change with the SEC probing them earlier this year.

To read the interview in full, and see more from the report, please click here.

 

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