Crypto for Advisors: The crypto due diligence questions you forgot to ask

As stablecoins, evolving regulations, and AI-enhanced infrastructure develop, advisors must revisit three critical questions that their crypto due diligence may not completely address.

What to know:

Then, in “Ask an Expert,” Aaron Brogan discusses the implementation timeline of the GENIUS Act, the anticipated changes once it is enacted, and recommendations for the interim period.

Crypto due diligence has changed: three questions advisors should revisit

As digital currencies, changing regulatory frameworks, and AI-supported infrastructure evolve, advisors need to reassess what legal and regulatory diligence entails. The aim is practical: fulfill fiduciary responsibilities, safeguard client trust, and adjust as market conditions shift. Three questions warrant deeper exploration: how client cash is managed, the disclosure of regulatory assumptions, and the validation of AI-driven crypto infrastructure.

Diligence Question

Which clients would gain the most from assessing digital cash management alternatives?

Institutional clients and those engaged in cross-border payments are an ideal starting point.

1. Cash Management Innovation

How should client cash management be assessed? The GENIUS Act and the rise of stablecoins have ushered in a new era for cash management. Platforms like Axal facilitate access to stablecoin lending markets that offer yields with greater transparency. Tokenized money market funds and other short-term investments from major issuers like BlackRock, Fidelity, and J.P. Morgan now manage billions in assets, providing on-chain settlements and daily liquidity.

For advisors, the key question is not just whether digital alternatives should supplant traditional cash sweeps or money market funds. It also involves ensuring that the documented analysis reflects the advisor’s consideration of the client’s best interests, including fees, conflicts, and suitability. The SEC’s recent enforcement actions against Wells Fargo Advisors and Merrill Lynch highlight that cash management is a significant decision. Stablecoins and tokenized short-term assets are not interchangeable cash products; their unique structures can present significant advantages for the right client, especially when speed of settlement, transparency, yield, or cross-border transactions are essential. Advisors must grasp the product details, provider controls, and client use cases before making recommendations.

Diligence Question

What factors would prompt a change in the recommendation of legislation, agency leadership, or enforcement approaches?

2. Connecting Political Risk and Client Trust

How should advisors explain regulatory dependency? The political landscape surrounding crypto growth remains divisive. The GENIUS Act and the proposed CLARITY Act symbolize progress from enforcement-based regulation towards more predictable frameworks. However, the details of implementation regulations, market behavior, consumer protection, and international coordination are still in flux. Ongoing discussions about stablecoin yield and ethics, including bank resistance and obstacles to the CLARITY legislation, indicate that the sector continues to face scrutiny from traditional players, private litigators, and state attorneys general.

The shift in enforcement under SEC Chairman Atkins emphasizes the importance of client communication. A platform under active enforcement one year may be cleared the next, and vice versa under a different administration. Advisors must avoid overpromising certainty and should disclose the regulatory assumptions and risks associated with portfolio recommendations, updating these as legislation and enforcement landscapes evolve.

Diligence question

Who is responsible when an agentic workflow involves client data or transaction execution?

3. The Convergence of AI and Crypto

Who is liable when AI is involved in crypto execution? AI agents are beginning to facilitate transactions on crypto networks, while organizations like the IMF have identified gaps in operational resilience and governance. Research into agentic commerce suggests that issues of validation, liability, and programmable compliance remain unresolved.

This convergence compels advisors to address four priorities: Security: do product sponsors possess a credible understanding of quantum readiness? Substance over hype: the SEC’s AI-washing cases remind us that claims regarding AI capabilities must be substantiated. Validation and controls: how are AI outputs tested, monitored, and authenticated before being applied in advice, trading, or client communications? Are the platforms facilitating transactions for users characterized by transparent interfaces or are their operations opaque? Privacy: updates to Reg S-P and the recent settlement involving Fidelity highlight the importance of client data governance when AI tools interact with confidential client information, including prompts, outputs, and training data.

These trends will continue to evolve. Advisors who provide reliable crypto recommendations will be those whose diligence considers AI innovation, political risks, and optimal cash management strategies for their clients. Where does your practice need to improve?

— Beth Haddock, managing partner and founder, Warburton Advisers

Ask an Expert

When dealing with stablecoins, is it crucial to determine whether they are of the GENIUS-compliant type or the previous MTL-only type?

The GENIUS Act was enacted on July 18, 2025. However, as of now, stablecoins are still governed by the previous regulatory framework. While GENIUS will introduce federal oversight across agencies and impose various requirements, including restrictions on reserve composition, current stablecoins are still issued under state money transmitter licenses (MTLs) without dedicated federal oversight.

How will the GENIUS Act alter the risk profile of legal stablecoins in the U.S., and when will it become effective?

This will all shift once GENIUS takes effect. The statute is set to become effective either on January 18, 2027, or 120 days following the issuance of final implementing regulations by the primary federal payment stablecoin regulators. It also instructs federal and state payment stablecoin regulators, along with the Secretary of the Treasury, to coordinate rulemaking by July 18, 2026. These rulemakings are currently underway. The regulations governing foreign payment stablecoin issuers will also come into effect on the same timeline.

— Aaron Brogan, founder and managing attorney, Brogan Law

Keep Reading

• The Digital Asset Market Clarity Act has been officially added to the U.S. Senate Legislative Calendar.
• Mastercard expands its settlement network to include additional regulated stablecoins.
• Stripe, Visa, and Mastercard are reportedly among the supporters of a soon-to-launch stablecoin platform.

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