FINRA Finds Majority of Retail Crypto Communications Misleading
The Financial Industry Regulatory Authority (FINRA) in the United States has reported that around 70% of retail communications related to cryptocurrencies violate its rule on misleading claims. This information comes from an official report released by FINRA, which identified communications lacking proper explanations about the issuance, holding, transfer, and sale of digital assets. The report is based on an examination conducted in November 2022, targeting crypto firms that engage with retail investors. FINRA assessed over 500 communications from member firms regarding assets offered by affiliates or third parties, checking for compliance with FINRA Rule 2210.
Failing to Differentiate Crypto Products and Services
During their examination, FINRA found numerous instances where communications failed to differentiate between crypto products and services offered through affiliates or the member firm itself. These communications were inconsistent with FINRA Rule 2210, which prohibits false or misleading statements and requires fair and balanced broker-dealer communications with the public. The report highlighted false implications that cryptocurrencies function like fiat or equivalent instruments, as well as misleading comparisons to other assets without providing a sound basis for evaluation.
Recommendations for Fair and Balanced Communications
Based on their findings, FINRA recommended several considerations for fair and balanced communications regarding cryptocurrencies. These include providing clear explanations of how crypto works, including its core features and risks. Firms should also disclose information about volatility and the potential for investors to lose their entire portfolio. Additionally, it is important to clarify the extent to which protections from designated agencies will apply to crypto assets. FINRA advises member firms to use this information when developing or modifying policies and procedures to ensure compliance with relevant regulatory obligations.
Hot Take: Retail Crypto Communications Fail Regulatory Standards
The recent report from FINRA reveals that the majority of retail communications about cryptocurrencies are misleading and violate regulatory rules. This highlights the need for greater transparency and accuracy in the crypto industry, particularly when it comes to communicating with retail investors. To address this issue, FINRA has made recommendations for fair and balanced communications, emphasizing the importance of providing clear explanations of how crypto works and disclosing its risks. It is crucial for member firms to consider these recommendations and develop appropriate policies and procedures to ensure compliance with regulatory obligations. By doing so, they can help protect investors and promote trust in the crypto market.
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