A Top Watchdog Finds Communication Violations in Crypto Industry
A recent report from the Financial Industry Regulatory Authority (FINRA) reveals that approximately 70 percent of communications regarding cryptocurrency may have violated the organization’s rules for fair and balanced communication with the public. The sweep conducted by FINRA identified several common themes among its member firms, including false statements claiming that crypto functions similarly to cash or cash equivalents. Additionally, comparisons between crypto and other assets like stocks were made, and misrepresentations were found regarding the application of federal securities laws or FINRA rules to cryptocurrency.
Under the oversight of the Securities and Exchange Commission, FINRA initiated this sweep in November to review member firms’ communications with retail customers regarding crypto and crypto services. In particular, FINRA analyzed 500 retail communications to assess compliance with its rules, which require broker-dealer communications with the public to be fair and balanced, prohibiting exaggerated, promissory, unwarranted, or misleading claims. The examination revealed that a few firms accounted for most of the potential violations.
Crypto Growth and the Importance of Clear Communication
Ira Gluck, senior director in FINRA’s advertising regulation department, emphasized the significance of clear communication in light of the growing interest in crypto assets. He stated that with the expansion of this market comes an increase in potential harm caused by problematic communications. Gluck further emphasized that for individuals to evaluate a crypto asset investment or service properly, communications must clearly describe its risks and features.
According to Gluck, FINRA reviews various forms of written communication such as print ads as well as longer formats like podcasts or even short advertisements during events like the Super Bowl. Regulatory agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission have also directed their attention towards regulating the crypto industry and have taken enforcement actions against prominent exchanges and firms within the sector in recent years.
Hot Take: Ensuring Transparent Communication in the Crypto Industry
The findings of FINRA’s sweep highlight the need for transparent and accurate communication within the crypto industry. With the increasing interest and growth in this market, it is crucial for individuals to receive reliable information that clearly outlines the risks and features associated with crypto assets. Regulatory agencies such as FINRA, the SEC, and the CFTC play a vital role in enforcing rules and regulations to protect investors and maintain fair practices in the industry. As the crypto market continues to evolve, it is essential for firms and individuals involved to prioritize clear and balanced communication to foster trust and facilitate informed decision-making.
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