FINRA Uncovers Violations in 70% of Crypto Asset Advertisements

A targeted investigation by FINRA has revealed potential breaches of public communication rules in 70% of informational materials concerning cryptocurrency products.

In November 2022, the self-regulatory organization launched an initiative to examine the practices of certain member firms that actively engage with retail clients regarding crypto assets and related services.

The focus is on compliance with FINRA Rule 2210, which, among other things, requires that broker-dealer communications with clients be “fair and balanced, and provide a sound basis for evaluating the facts regarding the products discussed.” The rules explicitly prohibit “false, exaggerated, unwarranted, promissory, or misleading statements.”

“As this market grows and interest in cryptocurrencies increases, the potential harm caused by problematic communications has also risen. […] To have sufficient information to evaluate investments or services in crypto assets, messages must clearly describe their risks and features,” stated FINRA’s Director of Advertising Regulation, Aira Gluck.

The organization reviewed approximately 500 informational materials related to offerings for retail investors. Among the most common violations identified by FINRA were:

• false claims that crypto assets function as money or its equivalents;
• comparing products to traditional assets without providing a reliable basis for comparing their respective features and risks;
• unclear and misleading explanations of how crypto assets work and their functions;
• failure to clearly explain to investors how digital currencies are issued, stored, or sold;
• false statements about the extent to which products are protected by securities laws and FINRA rules.

Back in January 2022, the organization’s head, Robert Cook, announced stricter requirements for crypto market participants concerning advertising and disclosure.