The U.S. Financial Industry Regulatory Authority (FINRA) has reported that approximately 70% of crypto asset-related communications reviewed in a recent targeted exam have failed to comply with its rules.
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.
“FINRA identified potential substantive violations of FINRA Rule 2210 in approximately 70 percent of the communications,” wrote the report.
One of the primary issues identified was the failure to clearly differentiate between crypto assets offered through third-party affiliates and those directly offered by the member firms. This lack of clarity potentially led to confusion among investors about the nature of the products and services being offered.
FINRA also found instances where crypto assets were inaccurately portrayed. In some communications, crypto assets were compared to cash or cash-equivalent instruments, without a sound basis for such comparisons.
Additionally, there were cases where the explanations provided about how crypto assets function, including their core features and risks, were either unclear or misleading.
Some communications even falsely suggested that certain crypto assets were protected by the Securities Investor Protection Corporation (SIPC) under the Securities Investor Protection Act
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