Nearly 70% of Crypto Communications Violate FINRA Guidelines
A recent survey conducted by the American Financial Industry Regulatory Authority (FINRA) reveals that approximately 70% of crypto communications have violated FINRA’s Rule 2210, which governs broker-dealer communications with the public. The findings, published in January 2024, highlight that many firms failed to clearly differentiate between Crypto Assets offered through affiliates or third parties and those offered directly by the member.
“This update does not create new legal or regulatory requirements or new interpretations of existing requirements, nor does it relieve firms of any existing obligations under federal securities laws and regulations. Rather, this update poses questions for firms to consider as they review and supervise their retail communications concerning Crypto Assets.” – FINRA
False Statements and Misrepresentation
Furthermore, FINRA identified instances where firms made false statements or implied that cryptocurrencies function like cash. Some firms also failed to provide a sound basis for evaluating cryptocurrencies and misrepresented that the protections of federal securities laws or FINRA rules applied to crypto.
Social Element in Crypto Investing
In a related report from May 2023, FINRA highlighted that new investors in the crypto market were more likely to be influenced by their friends’ suggestions compared to those entering the equities or bond markets. The survey found that over 30% of new crypto investors cited “friend suggestion” as their primary motivation for investing in cryptocurrencies, compared to just 8% for first-time equities or bond investors.
Hot Take: The Importance of Clear Communication in Crypto
Clear communication is crucial in the crypto industry, especially when it comes to differentiating between various types of Crypto Assets and providing accurate information about their nature and risks. Firms must review and supervise their retail communications concerning Crypto Assets to ensure compliance with FINRA guidelines. Additionally, the social element in crypto investing emphasizes the need for investors to conduct thorough research and seek reliable sources of information rather than solely relying on friends’ suggestions.
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