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The Financial Industry Regulatory Authority (FINRA) has identified potential violations of FINRA Rule 2210 (Communications with the Public) in 70% of crypto asset communications it reviewed, according to a report published today on the results of a targeted exam.

In November 2022, FINRA launched a targeted exam to review the practices of certain member firms that actively communicate with retail customers concerning crypto assets and crypto asset-related services. FINRA reviewed retail communications received from these firms for compliance with FINRA Rule 2210, which requires, among other things, that broker-dealer communications with the public be fair and balanced, and that they provide a sound basis for evaluating the facts regarding any product or service discussed.

FINRA Rule 2210 prohibits claims that are false, exaggerated, promissory, unwarranted or misleading. The rule also prohibits the omission of any material fact if the omission, in light of the context of the material presented, would cause a communication to be misleading.

FINRA reviewed more than 500 crypto asset-related retail communications. This included communications distributed or made available by FINRA member firms concerning crypto assets that were offered by or through an affiliate of the member or other third party. A handful of firms included in the exam distributed most of the potentially violative communications.

FINRA’s Advertising Regulation Department broadly reviews many types of broker-dealer and registered representative communications, including written communications such as a fund fact sheet, print ad in a newspaper or a product brochure, but also anything from a 90-minute podcast by the firm or a 15-second spot during the Super Bowl.

The potential substantive violations of FINRA Rule 2210 include:

  • Failure to clearly differentiate in communications, including those on mobile apps, between crypto assets offered through an affiliate of the member or another third party, and products and services offered directly by the member itself;
  • False statements or implications that crypto assets functioned like cash or cash equivalent instruments;
  • Other false or misleading statements or claims regarding crypto assets;
  • Comparisons of crypto assets to other assets (e.g., stock investments or cash) without providing a sound basis to compare the varying features and risks of these investments;
  • Unclear and misleading explanations of how crypto assets work and their core features and risks;
  • Failure to provide a sound basis to evaluate crypto assets by omitting clear explanations of how crypto assets are issued, held, transferred or sold;
  • Misrepresenting that the protections of the federal securities laws or FINRA rules applied to the crypto assets; and
  • Misleading statements about the extent to which certain crypto assets are protected by the Securities Investor Protection Corporation under the Securities Investor Protection Act.

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