The US Financial Industry Regulatory Authority (FINRA) has revealed that approximately 70% of retail communications regarding cryptocurrencies violate misleading labeling rules.
According to an official report, FINRA's communications fail to provide a sound basis for valuing digital assets by eliminating explanations of how they are issued, held, transferred, and sold. was identified.
Misleading encrypted communication
FINRA's findings come from an exam launched in November 2022 that evaluates practices that proactively communicate with retail investors through crypto assets and related services. Targeted at crypto-currency companies.
Financial regulators evaluated more than 500 communications distributed by member firms regarding assets provided by affiliates or third parties for compliance with FINRA Rule 2210.
FINRA Rule 2210 prohibits communications that are false, exaggerated, promising, untrue, or misleading, and also prohibits the omission of information that could make a communication deceptive. This rule requires that broker-dealer communications with the public be fair and balanced.
Among other things, FINRA found a failure to differentiate in communications, crypto products, and services offered through affiliates or members themselves. The majority of the communications violated FINRA Rule 2210.
FINRA Recommendations
Financial authorities have found false statements or suggestions that virtual currencies function similarly to fiat currency or equivalent instruments. Some companies likened virtual currencies to other assets such as stock investments, omitting a proper basis for comparing their different features and risks.
Moreover, the investigated companies mislead investors into believing that the protections of federal securities laws, the Securities Investor Protection Corporation (SIPC) under the Securities Investor Protection Act (SIPA), and FINRA rules apply to crypto assets. I let it happen.
FINRA found a large amount of unclear and misleading descriptions of how cryptocurrencies work, including their core features and risks.
The regulator recommended considerations for fair and balanced communication, including information on volatility, the likelihood that investors will lose their entire portfolio, and the extent to which designated authority protections apply.
“Member companies may develop new policies and procedures, or improve existing policies and procedures, that are reasonably designed to achieve compliance with relevant regulatory obligations based on member company size, business model, and practices. You may consider the information in this update as you make changes,” FINRA advised.
