According to FINRA, 70% of communications involving cryptocurrency violate regulations
The U.S. Financial Industry Regulatory Authority (FINRA) conducted a recent focused assessment, which found that almost 70% of communications pertaining to crypto assets did not meet the requirements set forth by the authority.
FINRA member firms sent or made available approximately 500 retail communications pertaining to cryptocurrency, which underwent a comprehensive evaluation during the study that began in November 2022, as detailed in a recent report by the organisation.
The major objective was to assess these communications in light of FINRA Rule 2210. This rule states that in all communications with the public, broker-dealers must provide a solid foundation for assessing the facts about any product or service that is being discussed and forbid making claims that are exaggerated, unfounded, or misleading.
In over 70% of the emails, “FINRA identified potential substantive violations of FINRA Rule 2210,” according to the study.
Inconsistent communication practices
One of the main concerns identified was the confusion between crypto assets provided by member businesses and those provided by third-party affiliates. Because of this haziness, investors may have misunderstood the promised goods and services.
There were additional cases when FINRA discovered false representations about crypto assets. Some messages made unfounded analogies between cryptocurrency and cash or cash-equivalent items.
Furthermore, there were instances when the descriptions given on the operation, fundamental characteristics, and hazards of crypto assets were ambiguous at best.
Certain messages indicated that the Securities Investor Protection Corporation (SIPC) protected specific cryptocurrency assets under the Securities Investor Protection Act (SIPA), potentially misleading investors.
FINRA’s Suggestion for Improvement
The Financial Industry Regulatory Authority (FINRA) issued “Questions for Consideration” and rules to guarantee a “fair and balanced presentation” in communications pertaining to cryptocurrency after the problems were discovered.
When it comes to crypto communications, FINRA has advised companies to be wary of what they say. For example, “Is there any unwarranted or misleading content in your company’s retail communications regarding crypto assets?”
According to the paper, it is important to thoroughly examine claims that portray crypto assets as easily traded liquid assets or use language that exaggerates the safety of trading in crypto assets.
The study from FINRA stressed the need to be clear and accurate when presenting cryptocurrency holdings. “Does your company present the risks associated with a crypto asset in a balanced and fair manner in its retail communications?”
In the ever-changing and sometimes confusing crypto environment, the questions and guidelines sought to steer businesses toward more open, informed, and compliance-based business tactics.