On 23 January 2024, the Financial Industry Regulatory Authority (FINRA) published its findings from a 2022 targeted exam sweep, which may serve as a warning to broker-dealers offering crypto asset products. FINRA conducted a sweep reviewing communications made between 1 July 2022 and 30 September 2022 by member firms in connection with crypto assets and crypto-related products and services, focusing on compliance with FINRA Rule 2210 (Communications with the Public). The exam focused not only on written material, but also on communications made via websites, podcasts, advertisements, social media, and other public channels.
FINRA reported that roughly 70% of the more than 500 communications reviewed included potential substantive violations of Rule 2210. However, the report did not include any examples of such violations–meaning it remains unclear how “substantive” these violations may have been. The most common themes of the deficiencies noted in the report include:
- Failure to communicate when crypto assets are offered through an affiliate or another third party;
- Making false or misleading statements about the nature of the products or assets, or about protections provided by federal securities laws, FINRA rules, SIPC, or SIPA;
- Failure to adequately identify or provide a “fair and balanced presentation” of risks;
- Failure to clearly communicate commissions or fees; and
- Failure to explain technical terms associated with the crypto assets.
FINRA also highlighted several questions that member firms should consider in relation to statements or claims they make and the fair and balanced presentation of information to the public.
This report of findings, along with FINRA’s 2024 Annual Regulatory Oversight Report (the “Annual Report”), suggests a continued regulatory skepticism related to crypto-assets and that there may soon be an uptick in crypto-related enforcement actions by FINRA under Rule 2210. It is also possible this report, and the focus on crypto assets in the Annual Report, is meant to caution member firms considering offering the recently launched registered Bitcoin Spot ETPs. Accordingly, firms should monitor their public statements closely and conduct a heightened review regarding communications regarding crypto assets.