A US regulatory organization says that 70% of all crypto communications may contain violations of current regulations.
In a new press release, the Financial Industry Regulatory Authority (FINRA), which sets and enforces rules for registered brokers and brokerage firms, says that after conducting an investigation, they found violations in up to 70% of crypto communications.
According to FINRA, it was looking for violations of Rule 2210, which “prohibits claims that are false, exaggerated, promissory, unfounded, or misleading.” After examining 500 retail communications, the organization concluded that the majority of them broke the rule.
As FINRA Senior Director Ira Gluck says on the FINRA Unscripted podcast:
“Our analysts were asked to focus on substantive violations of applicable rules, as opposed to technical violations. So this involved looking for false, misleading or promising statements, such as did the communication falsely imply that crypto assets were being offered through the broker-dealer?
Did the communication misrepresent the extent to which the federal securities laws or SIPC applied, and did the communication exaggerate or misrepresent the characteristics of the investment? We also asked our analysts to look for adequate risk information or balanced language.
And we really just wanted to make sure that the communications included the applicable risks associated with crypto assets, specifically the risks associated with the way in which crypto assets are issued, sold, held or transferred.
Finally, we also asked analysts to review companies’ written oversight procedures, controls and training regarding the communications of crypto assets to ensure they are appropriately overseeing this company.”
Gluck said he expected high non-compliance rates before the study, which was confirmed by the results.
“Given our experience prior to the sweep, we expected a relatively high non-compliance rate. And unfortunately, what we found was… [that] Nearly 70% of the communications we reviewed failed to comply with FINRA Rule 2210 in a substantive manner.”
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