The Financial Industry Regulatory Authority (FINRA) has raised red flags in the realm of cryptocurrency-related communications, revealing that approximately 70% of surveyed messages contained “false, exaggerated, promissory, unwarranted, or misleading” claims. In a report released on January 23, FINRA disclosed its findings after reviewing over 500 crypto asset-related retail communications since November 2022.
According to the regulatory body, more than 70% of these communications demonstrated “potential substantive violations” of its rules concerning public communications. Ira Gluck, Senior Director at FINRA, emphasized the escalating risks associated with problematic communications in the growing crypto market, noting that clear descriptions of risks and features are essential for evaluating crypto asset investments or services.
Crypto-related communications subject to review spanned a spectrum from podcasts to advertisements during high-profile events like the Super Bowl. Violations ranged from misleading claims about crypto to misrepresenting how federal securities laws’ protections applied to digital assets. FINRA initiated the review following the collapse of FTX in November 2022, a crypto exchange that had an extensive marketing campaign, involving celebrity endorsements and prominent sponsorships.
As a non-governmental regulator empowered by the United States Congress, FINRA oversees specific areas related to investor protection. The regulator collaborates with the Securities and Exchange Commission (SEC) in approving broker-dealer licenses for crypto firms and penalizing those violating guidelines.
The findings revealed potential violations of FINRA Rule 2210, which governs communications with the public. Rule 2210 requires broker-dealer communications to be fair, balanced, and provide a sound basis for evaluating discussed products or services. The rule prohibits false, exaggerated, promissory, unwarranted, or misleading claims and mandates clear explanations of the facts.
The reported violations included the failure to differentiate between crypto assets offered through affiliates or third parties and those directly offered by the member, false statements regarding crypto assets’ functions, misleading comparisons to other assets, and unclear explanations of how crypto assets work and their associated risks.
The findings highlight the need for enhanced regulatory scrutiny and industry adherence to communication guidelines as the crypto market continues to attract investors and participants. Investors and industry stakeholders alike will be closely monitoring regulatory responses to ensure a transparent and compliant crypto ecosystem.