According to Blockworks, a Financial Industry Regulatory Authority (FINRA) review of firms' crypto communications discovered that approximately 70% potentially violate a specific investor protection guideline. The analysis, initiated in November 2022, concentrated on how firms are adhering to FINRA Rule 2210, which prohibits false, exaggerated, promissory, unwarranted, or misleading claims. The rule also disallows the omission of facts that could deceive investors. About 70% of the 500 examined crypto-related communications to retail investors from FINRA member firms contained potential substantive violations of the regulation, the regulator announced on Tuesday.
Violations included companies' failure to distinguish between crypto assets offered through the firm and those provided through an affiliate or third party, according to the FINRA analysis. These communications also contained false statements or implications that crypto assets functioned like cash. FINRA emphasized that this update does not create new legal or regulatory requirements or interpretations of existing requirements, nor does it relieve firms of any existing obligations under federal securities laws and regulations.
FINRA's Membership Application Program (MAP) follows the US Securities and Exchange Commission's (SEC) guidance in evaluating a firm's proposed crypto asset securities business line under applicable rules. The regulator has previously issued crypto-related warnings and considerations, in collaboration with the SEC and the North American Securities Administrators Association, regarding risks associated with self-directed Individual Retirement Accounts that may invest in crypto assets. FINRA also included crypto asset developments in its 2024 regulatory insight report.
Crackdowns on crypto firms' communications to investors extend beyond the US, with the United Kingdom's Financial Conduct Authority (FCA) recently intensifying efforts to ensure crypto firms marketing to UK customers comply with specific regulations.