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Finra’s Crypto Sweep Reveals Widespread Violations in Communication


The results of Finra’s recent crypto sweep have shed light on a concerning trend. After reviewing messages from brokerage firms regarding crypto assets through a targeted exam program, the regulator has found that more than two-thirds of these communications potentially violate the rules governing public communications.

Within the extensive review of over 500 separate communications, Finra encountered a wide range of missteps. Some examples include false or misleading statements, product comparisons without proper context, and a lack of clear explanations on how crypto assets function.

Ira Gluck, senior director of Finra’s Advertising Regulation Department, emphasized the significance of these findings in a podcast discussion. “With the market’s growth and increased interest in crypto assets, problematic communications can cause significant harm,” Gluck stated. He further emphasized the need for communications to accurately describe risks and features associated with crypto asset investments or services.

These findings stemmed from a sweep examination initiative launched by Finra in November 2022. The goal of this initiative was to evaluate how firms that actively communicate with clients about crypto assets were adhering to the requirements outlined in Finra’s Rule 2210 on public communications.

The purpose of Rule 2210 is to ensure that investors receive informative and unbiased information that empowers them to make well-informed investment decisions. It includes stipulations that communications must be fair and balanced, providing clients with a solid foundation to evaluate the facts pertaining to an investment product or strategy. Notably, the rule governs client communications in various formats, ranging from traditional brochures to company podcasts and TV ads.

According to Finra, a staggering 70% of the communications reviewed during the sweep examination risk violating Rule 2210. This highlights the urgent need for brokerage firms to enhance their communication practices in the realm of crypto assets.

Finra’s Compliance Requirements for Crypto Communications

Unwarranted or Misleading Content

One key aspect emphasized by Finra is to avoid any “unwarranted or misleading content” in communications. Examples of such content include describing crypto assets as highly liquid and easily tradable, or implying that they are backed or secured by a clearing firm or trading platform.

Avoid Misleading Comparisons

Finra also cautions against making misleading comparisons that imply crypto assets offer similar benefits to gold or cash alternatives. It is important for firms to accurately represent the unique characteristics and risks associated with cryptocurrencies.

The Importance of Fair and Balanced Information

To demonstrate fairness and balance, Finra suggests that firms provide a comprehensive description of the risks associated with crypto assets. This includes addressing the speculative nature of the asset class, highlighting the potential for fraud, and acknowledging the absence of a well-established regulatory framework.

Enforcement Actions for Communication Issues

Finra wants firms to be aware that any communication issues identified in their report could lead to enforcement actions. Amy Sochard, Vice President of the Advertising Regulation Department at Finra, mentioned that discussions regarding potential violations are already underway for some of the subjects mentioned in the report.

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