70% of Crypto Asset Communications Flouted Rules: FINRA
The Financial Industry Regulatory Authority (FINRA), the self-regulatory body for all broker-dealers in the U.S., found potential violations of FINRA Rule 2210 (Communications with the Public) in 70% of crypto asset communications it reviewed, according to a report.
In November 2022, FINRA began a targeted exam to examine the conduct of specific member firms that actively communicate with retail customers about crypto assets and related services.
FINRA Rule 2210 “prohibits claims that are false, exaggerated, promissory, unwarranted or misleading. The rule also prohibits the omission of any material fact if the omission, in light of the context of the material presented, would cause a communication to be misleading.”
FINRA discovered some common characteristics in a review of over 500 crypto asset-related retail communications, including erroneous claims that crypto worked like cash or cash equivalents. It also saw parallels of cryptocurrency to other assets such as stocks, as well as false claims that federal securities laws or FINRA rules applied to cryptocurrency.
FINRA urged firms to consider two categories to guard against violations: statements or claims and fair and balanced presentations.
“With the growth in this market and increased interest in crypto assets, the potential harm caused by problematic communications has also increased … [I]n order to have enough information to evaluate a crypto asset investment or service, communications need to clearly describe its risks and features,” Ira Gluck, senior director, advertising regulation department, FINRA said during an ‘Unscripted’ Podcast episode.
FINRA’s advertising regulation department examines a wide range of broker-dealer and registered representative communications, including written communications such as a fund fact sheet, print ad in a newspaper, or a product brochure, as well as “anything from a 90-minute podcast by the firm to a 15-second spot during the Super Bowl,” Gluck stated during the episode.
