FINRA Claims Widespread Violations in Majority of Crypto Asset Communications

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Following an examination launched in November 2022, FINRA claims widespread potential violations in the way member firms communicate about crypto assets.

FINRA Report Alleges Misinformation in Crypto Asset Marketing

In a report released on Jan. 23, the Financial Industry Regulatory Authority (FINRA) has found that approximately 70% of public communications related to crypto assets by its member firms contain potential violations. This revelation comes from a targeted examination initiated by FINRA in November 2022, following the high-profile collapse of cryptocurrency exchange FTX.

FINRA, a non-governmental organization authorized by Congress to protect American investors, reviewed over 500 retail communications concerning crypto assets. These communications ranged from traditional advertising to more modern forms, including mobile app promotions and digital media content.

The regulator sees these misleading or false statements in communications as a concerning trend. The reviewed materials often failed to differentiate clearly between crypto assets offered by member firms and third parties. Additionally, many communications falsely represented crypto assets as secure or equivalent to traditional financial instruments like cash.

Ira Gluck, Senior Director at FINRA, said on an appearance on FINRA’s “Unscripted” podcast just after the report was released, “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.”

The review also identified issues with how crypto assets were compared to other investment options, such as stocks or gold, often without a sound basis for comparison. Furthermore, several communications misleadingly suggested that crypto assets were protected under federal securities laws or by organizations like the Securities Investor Protection Corporation (SIPC).

In response to these findings, FINRA has posed a series of questions to its member firms, urging them to reevaluate their communication strategies concerning crypto assets. These questions focus on ensuring that firms provide balanced presentations of risks associated with crypto assets and clearly distinguish between different types of products and services offered.

Have you found crypto asset communications to be misleading or outright false? Share your thoughts and opinions about this subject in the comments section below.