Most Crypto Asset Communications by Broker-Dealers Fail FINRA Rules

Table of Contents

• Background
• Key Findings
• Recommendations
• Looking Ahead

A recent FINRA report suggests that as much as 70% of crypto asset-related communications distributed by FINRA member firms do not comply with the organization’s rules. The findings point to widespread issues in the transparency and clarity of how broker-dealers are presenting crypto assets to investors.

Background

According to a recent report by the FINRA, the examination launched in November 2022 involved a thorough review of over 500 retail communications distributed or made available by FINRA member firms concerning crypto assets.

The primary focus was to evaluate these communications against FINRA Rule 2210, which mandates that broker-dealer communications with the public must provide a sound basis for evaluating the facts regarding any product or service discussed and prohibits exaggerated, unwarranted, or misleading claims.

Key Findings

FINRA found that around 70% of the crypto asset communications reviewed contained potential substantive violations of Rule 2210. Issues included:

• Failure to clearly differentiate between crypto assets offered by member firms versus third parties
• False comparisons of crypto assets to cash or cash equivalents
• Misleading or unclear explanations of how crypto assets operate
• False claims that crypto assets were protected by SIPC/SIPA

Recommendations

FINRA recommended that broker-dealer firms critically review their crypto asset communications for misleading content, particularly around liquidity and safety. Clarity on the risks associated with crypto assets is paramount, according to the report.

FINRA aims for these guidelines to help firms adopt more rule-compliant, transparent and informative strategies for communicating about crypto assets.

Looking Ahead

The findings suggest that many broker-dealers still have work to do in communicating crypto assets in a manner that adequately informs investors about risks and meets regulatory standards. Increased education, oversight and policy clarity will likely be needed to improve crypto asset communications going forward.

As the crypto industry continues to evolve, transparent and responsible communication practices will be essential to protect investors and build trust.

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