The U.S. Financial Industry Regulatory Authority (FINRA) finds that the majority of crypto asset-related communications fail to comply with its rules.
A recent report by FINRA reveals that during a targeted exam, about 70% of crypto asset-related communications did not meet the regulatory requirements. The examination involved a thorough review of over 500 retail communications distributed by FINRA member firms regarding crypto assets.
Inconsistent Communication Practices
One of the main issues identified was the failure to clearly differentiate between crypto assets offered through third-party affiliates and those directly offered by member firms. This lack of clarity led to potential confusion among investors about the nature of the products and services being offered.
FINRA also found instances where crypto assets were inaccurately portrayed, comparing them to cash or cash-equivalent instruments without a valid basis for such comparisons. Additionally, explanations provided about how crypto assets functioned, including their core features and risks, were unclear or misleading in some cases.
FINRA’s Suggestion for Improvement
After identifying these issues, FINRA provided a set of “Questions for Consideration” and guidelines for ensuring a “Fair and Balanced Presentation” in crypto-related communications. Firms were advised to question the content of their crypto communications and carefully scrutinize any unwarranted or misleading information.
The report emphasized the need for clarity and accuracy in the presentation of crypto assets, urging firms to provide a fair and balanced portrayal of the risks involved. The guidance aimed to direct firms towards more transparent, informative, and compliant strategies when communicating about crypto assets.
Hot Take: Compliance is Crucial in Crypto Communications
The recent findings by FINRA highlight the importance of compliance in communicating about crypto assets. With approximately 70% of reviewed communications failing to meet regulatory requirements, it is clear that improvements are necessary to ensure transparency and avoid misleading investors. Firms must differentiate between different types of crypto assets and provide accurate information about their features and risks. By following FINRA’s guidelines and asking critical questions about the content of their communications, firms can enhance their compliance efforts and contribute to a fair and balanced representation of the crypto industry.
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