Based on the findings of a targeted study, FINRA identified potential violations of public communications guidelines in 70% of information materials related to cryptocurrency products.
In November 2022, the self-regulatory organization launched an investigation into the practices of specific member firms that actively engage with retail clients in regards to crypto assets and associated services.
The focus was on compliance with FINRA Rule 2210, which requires broker-dealers to provide fair and balanced communications that accurately represent the features and risks of discussed products. This includes prohibiting false, exaggerated, or misleading statements.
According to FINRA Director of Advertising Regulation Ira Gluck, the increased interest in cryptocurrencies and the market’s growth has also increased the potential harm caused by problematic communications.
Therefore, it is crucial for the information provided to clearly outline the risks and features of these investments or services.
During the investigation, the organization reviewed around 500 information materials related to offers for retail investors.
The most common violations found by FINRA included false statements about cryptoassets functioning like cash, inadequate comparisons between traditional and crypto assets, unclear explanations of how digital currencies work, and failure to explain how they are issued, held, or traded.
