In today’s newsletter, Beth Haddock reviews the three due diligence questions advisors should be asking in 2026: how client cash is managed, how regulatory assumptions should be disclosed, and how to manage liability when AI executes cryptocurrency trades.
Then, in “Ask an Expert,” Aaron Brogan reviews the GENIUS Act implementation timeline, how things will change once it’s here, and what to do in the meantime.
– Sara Morton
Crypto Due Diligence Has Changed: Three Questions Advisors Should Review
As digital money, changing regulatory requirements, and AI-enabled infrastructure mature, advisors should review what legal and regulatory diligence covers. The goal is practical: fulfill fiduciary duties, protect client trust, and adapt to market changes. Three questions deserve more attention: how customer cash is managed, how regulatory assumptions are disclosed, and how AI-powered crypto infrastructure is validated.
Prepared with Claude (Anthropic) as a writing tool; Content, address and author’s review.
diligence question
Which clients would benefit most from evaluating digital cash management alternatives?
Institutional and cross-border payments customers are a natural place to start.
1. Innovation in cash management
How should customer cash management be reviewed? The GENIUS Act and the growth of stablecoins have opened a new chapter for cash management. Stablecoin lending markets, accessible through platforms like Axal, offer returns with greater transparency. Tokenized money market funds and other short-term assets from issuers like BlackRock, Fidelity, and JP Morgan now hold billions in assets, with on-chain settlement and daily liquidity.
For advisors, the question is not whether digital alternatives should replace traditional cash withdrawals or money market funds. It is also whether the documented analysis reflects that the advisor considered the client’s best interests, including fees, conflicts, and appropriateness. The SEC’s recent cash control actions against Wells Fargo Advisors and Merrill Lynch make clear that cash management is not a neutral decision. Stablecoins and short-term tokenized assets are not generic cash products, but that’s the point: their structure can offer significant advantages for the right client, particularly when settlement speed, transparency, performance or cross-border movement are important. Advisors should understand the product terms, vendor controls, and customer use case before making a recommendation.
diligence question
What would a recommendation change in legislation, agency leadership, or changes in law enforcement posture?
2. Connect political risk and customer trust
How should regulatory dependency be explained? Political support for and opposition to the growth of cryptocurrencies remains contentious. The GENIUS Act and the proposed CLARITY Act represent a move away from regulation through enforcement toward more predictable frameworks. But implementing regulations, market conduct, consumer protection and global coordination remain unresolved. Debates over the performance and ethics of stablecoins, including banking opposition and CLARITY legislative hurdles, show that the sector still faces scrutiny from incumbents, private litigators, and state attorneys general.
The change in law enforcement under SEC Chairman Atkins illustrates why customer communication is important. A platform under active surveillance one year may be authorized the next, and the opposite is possible in a future administration. Advisors should not promise too much certainty. Advisers should disclose regulatory assumptions and risks behind portfolio recommendations and update those assumptions as legislation and compliance posture evolve.
diligence question
Who is responsible when an agency workflow affects client data or transaction execution?
3. The convergence of AI and cryptocurrencies
Who is responsible when AI touches cryptocurrency execution? AI agents are beginning to settle transactions in cryptoways, while the IMF and others have pointed out gaps in operational resilience and governance. Research on agent trading suggests that validation, accountability, and programmable compliance remain unresolved.
This convergence should prompt advisors to cover four priorities. Security: Do product sponsors have a credible view on quantum readiness? Substance over hype: The SEC’s AI laundering cases remind us that claims about AI capabilities must be verifiable. Validation and controls: How are AI results tested, monitored and authenticated before they are used in advice, trading or client communications? Do platforms that prepare transactions for users have transparent or opaque user interfaces in their operations? Privacy: The amended Reg SP and Fidelity’s recent data breach settlement show why customer data governance is important when AI tools touch sensitive and customer information, including prompts, outcomes, and data used for training.
These trends will continue to evolve. Advisors who provide reliable crypto recommendations will be those whose diligence takes into account AI innovation, political risk, and the best cash management options for their clients. Where is your least prepared practice?
– Beth Haddock, Managing Partner and Founder of Warburton Advisers
ask an expert
When interacting with stablecoins, is it important to evaluate whether they are the GENIUS-compatible type or the old MTL-only type?
The GENIUS Act became law on July 18, 2025. Despite this, to date, stablecoins remain regulated under the old regime. While GENIUS will introduce interagency federal oversight, as well as many requirements including limiting reserve composition, current stablecoins are still issued using state money transmission licenses (MTL) without dedicated federal oversight.
The GENIUS Act will change the risk profile of legal stablecoins in the United States, but when will it go into effect?
All this will change when GENIUS comes into effect. The statute will take effect on January 18, 2027, or 120 days after top federal payments stablecoin regulators issue final implementing regulations, whichever comes first. Separately directs federal payments stablecoin regulators, state payments stablecoin regulators, and the Secretary of the Treasury to coordinate to promulgate rulemaking by July 18, 2026. Those regulations are currently in progress. The rules governing foreign payment stablecoin issuers will come into effect on the same effective date schedule.
– Aaron Brogan, Founder and Managing Attorney, Brogan Law
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