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Considerations for Fund Directors on Emerging Use of Blockchain, Cryptocurrencies

An article by lawyers from Drinker Biddle discussed recent developments in blockchain technology and cryptocurrencies and the implications for the fund industry as well as fund directors. These emerging technologies, which currently face significant regulatory hurdles, could in the future affect fund directors’ oversight responsibilities in the areas of risk, disclosure, fund operations and oversight of investments, according to the publication.“Blockchain technology and cryptocurrencies are both frontier issues for the fund industry... Fund directors may wish to consider asking fund sponsors for management’s view on blockchain technology, ICOs and cryptocurrencies.” The lawyers suggested several questions that directors may begin to consider with fund management and with their independent counsel as these technologies enter the mainstream, including:

  • Whether transactions in Bitcoins and other virtual currencies should be covered by the code of ethics applicable to a fund’s investment personnel.  
  • If blockchain technology is used in fund operations, are the risks sufficiently disclosed?
  • If a fund or its distributor elects to accept payments in a given cryptocurrency, how will the fund or its distributors meet anti-money laundering and know-your-customer obligations?
  • What risks do cryptocurrencies or cryptocurrency derivatives pose to a fund and its shareholders; are they appropriate for the portfolio of an open-end mutual fund structure?