Digital assets, such as cryptocurrencies and initial coin offerings (ICOs), generally share the following features:

• A virtual currency/token/coin is a digital representation of value that can be digitally traded and functions as a medium of exchange, unit of account, or store of value;
• A virtual currency exchange is a person or entity that exchanges virtual currency for fiat currency, funds, or other forms of virtual currency. Exchanges typically charge fees, and secondary trading may occur. These exchanges are generally not registered securities exchanges or alternative trading systems subject to federal securities laws.
• Virtual tokens/coins may be issued by a virtual organization or capital-raising entity;
• Digital assets may or may not be considered securities or commodities products, and may be unregulated;

While not yet categorically deemed as securities, certain digital asset transactions and holdings may yet be subject to transactional reporting. 

POLICY

Registered persons are permitted to purchase digital assets for personal use. Generally, such assets are held in a digital wallet, and are not subject to reporting. However, some trading platforms allow for the purchase or sale of digital assets, which can subject those holdings to reporting. Therefore, ESI’s policy is that digital assets held in a brokerage account are reportable assets, and such transactions must be reflected in your outside brokerage account(s) transaction history.  As a reminder, outside brokerage accounts (i.e. those held at firms other than ESI) must be disclosed prior to opening and are reported through Star Compliance. To receive approval to open an outside account, complete the Authorization to Provide Account Information form and email it to ESICompliance@nationallife.com.  Upon approval, the account will be added to your Star Compliance profile.

If you hold a brokerage account at a firm with which ESI does not have an automated data feed, please work with Ben Zarzycki in ESI Compliance (see contact info below) to ensure ESI receives duplicate copies of your monthly/quarterly account statements.

Note: Investment adviser representatives subject to quarterly transaction reporting and who hold digital assets in a reportable brokerage account will be required to either:

1. validate that their digital transactions carry through via an automated data feed (if their account is set up for such a feed),
2. manually enter their transactional information into Star in conjunction with each reporting period, or
3. attach statements to their quarterly transaction report.

TRADING digital assetS in client accounts is prohibited

As a reminder, ESI does not permit the purchase or sale of digital assets in client accounts. Additionally, the NFS trading platform currently does not support transactions in digital assets.

QUESTIONS

If you have questions about outside brokerage accounts, automated data feeds, reportable transactions, or the process for obtaining approval for an outside account, contact Ben Zarzycki at 802-229-3659 or bzarzycki@nationallife.com.

CLICK HERE TO VIEW FIELD NOTICE 2021-17: DIGITAL ASSETS IN OUTSIDE ACCOUNTS

TC121519(0621)1

REMINDER: Political Contributions – FN2020-13
FINRA Rule 2030 and SEC Rule 206(4)-5 (collectively, the “Pay-to-Play Rules”) place restrictions on broker dealers and investment advisers in connection with political contributions.  Under the Pay-to-Play Rules, ESI is prohibited from engaging in solicitation or distribution activities with certain government entities for two years after a contribution is made to an official of that government entity.  Therefore, ESI policy requires preclearance of certain contributions to candidates for political office by Registered Representatives (“RRs”), as well as Investment Adviser Representatives (“IARs”).

Applicability
ESI policy requires that a Contribution to any Official running for political office (includes federal, state, or municipal), Government Entity, or political action committee (“PAC”) must be pre-approved by the Firm.

Contributions to candidates for state and/or municipal offices may not exceed $350 during an election cycle if you can vote for the official; or $150 during an election cycle if you cannot vote for the official.  Contributions to entities that support campaigns (i.e. PACs), at the state or municipal levels are subject to the same de minimis contribution limits.

Please note that these limits apply to candidates for federal office, if they are incumbent to an elected position at the state or municipal level while running for federal office.  For example: the limits would apply to a contribution to a current state governor running for a federal senate seat.

Definitions:

• A Government Entity is any state or political subdivision of a state, including municipalities.
• A Contribution is any gift, loan, advance, deposit of money or anything of value.
• An Official means any person who was, at the time of the Contribution, an incumbent, candidate or successful candidate for elective office of a Government Entity, if the office:
  • Is directly or indirectly responsible for, or can influence the outcome of, the hiring of an investment adviser by a Government Entity; or
  • Has authority to appoint any person who is directly or indirectly responsible for, or can influence the outcome of, the hiring of an investment adviser by a Government Entity.

Important to Note:

• You are prohibited from directing another person to contribute on your behalf.
• You may not direct payments through third parties (e.g. consultants, attorneys, family, friends or affiliated companies).

Certification
IARs are required to declare and certify political contributions, including those made to PACs, on their Quarterly Political Activity Certification. RRs certify annually, on their Registered Representative Annual Certification, that they have reported their political contribution activity. Do not wait until the certification to report a contribution. 

How to Pre-Clear or Declare a Contribution
To submit a pre-clearance or declaration request for a political contribution:

• Go to StarCompliance (https://nationallife.starcompliance.com)
• Click on the “Political Activity” tile near the top of the page
• Once the tile is clicked the “DECLARE POLITICAL ACTIVITY” form will appear
• Complete the form and click “Submit”.

You may check the status of your request by clicking “View List” on the “Political Activity” tile, which displays submitted request(s) and their status (i.e. pending, approved, denied).

Failure to Pre-Clear Contributions
Pre-clearing political contributions permits ESI the opportunity to ensure your proposed contribution will not place the Firm and/or any of its RRs in jeopardy of violating the Rule. Failure to pre-clear Contributions to candidates for, or incumbents of, state or municipal office could create regulatory exposure and may result in disciplinary action. 

If you have any questions about this requirement, please contact your supervisor or ESI Compliance at 800-344-7437.