A recent examination by FINRA uncovered a staggering 70% potential rate of violation of its retail communication regulations for crypto assets. This revelation has highlighted the need for stringent adherence to regulatory guidelines as firms navigate the complex landscape of crypto assets.
Under FINRA's targeted examination, over 500 crypto asset-related retail communications were scrutinized. Approximately 70% of these communications exhibited potential violations of FINRA Rule 2210.
Crypto Asset Communications
Among the discrepancies were the failure to differentiate between crypto assets offered by affiliate companies and those offered by crypto companies, false statements about crypto assets' functions, and misleading comparisons to traditional assets. These findings raise critical questions for firms engaging in crypto communications.
Following the examination, firms have been urged to examine the accuracy of their retail communications involving crypto assets. According to FINRA, clarity is essential, especially when promoting products and services, as misleading implications can lead to misunderstanding.
In 2022, we launched a targeted exam to review certain member firms that actively communicate with retail customers regarding crypto assets and services. Listen to the latest #FINRAUnscripted to hear the results of our crypto asset communications sweep. ???? https://t.co/LA7sgqFAXj pic.twitter.com/oVYjspDS9M
— FINRA (@FINRA) January 23, 2024
Amy Sochard, the Vice President of the Advertising Regulation Department at FINRA, mentioned: "The crypto asset market has rapidly grown over the last decade, and product offerings and retail investor participation have expanded. Our update on the targeted exam poses questions for firms to consider as they review and supervise their retail communications concerning crypto assets."
"Any findings of substantive potential violations are evaluated for further review and follow-up, including considering whether to refer to FINRA's Enforcement Department, as appropriate."
Crypto Assets Risks and Disclosures
Recently, FINRA released its annual regulatory oversight report for 2024, highlighting key priorities, includingcybersecurity, cryptocurrency, and communication standards, Finance Magnates reported.
The report introduced emerging regulatory scope, encompassing areas like cryptocurrency, the impact of AI on regulatory obligations, and the supervision of off-channel communications.
FINRA emphasized the important roles of compliance in cybersecurity, referencing the SEC’s regulations for safeguarding customer information, business continuity, and incident reporting. The SEC’s rules mandate public companies to disclose cybersecurity incidents.
The report offers a comprehensive cybersecurity checklist, underscoring technology management, vendor oversight, change management, system availability, data protection, and event handling.
This article was written by Jared Kirui at www.financemagnates.com.
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