70% of Crypto Asset Public Communications Found in Violation by FINRA

In a recent report, the Financial Industry Regulatory Authority (FINRA) disclosed that approximately 70% of the crypto-related communications it reviewed contained misleading or false claims, violating guidelines on public communications. The review, which began in November 2022, analyzed over 500 retail communications related to crypto assets. FINRA identified more than 70% of the communications as having potential substantive violations of its rules on public communications.

Ira Gluck, the senior director at FINRA, emphasized the need for clear descriptions of risks and features in crypto-related communications, highlighting the increased potential harm caused by problematic communication in the growing crypto market. These communications can range from podcasts to advertisements during the Super Bowl. The violations discovered by FINRA included misleading claims about cryptocurrencies and misrepresentation of the application of federal securities laws to digital assets.

The regulator provided crypto firms with a set of questions to consider while crafting their public communications as part of its targeted exam. This move came after the collapse of FTX, a prominent crypto exchange, in November 2022. FTX had conducted an extensive marketing campaign, involving celebrity endorsements, sponsorship of sports venues, and media appearances by its former CEO, Sam Bankman-Fried. The review of crypto-related public communications by FINRA is part of its role as a non-governmental regulator overseeing investor protection.

FINRA has collaborated with the Securities and Exchange Commission (SEC) in approving broker-dealer licenses for crypto firms, while also penalizing those that have violated guidelines. As the interest in crypto assets continues to grow, regulatory bodies like FINRA are increasingly focused on maintaining transparency and protecting investors from misleading or false claims made in the crypto market.