FINRA identifies regulatory breaches in 70% of crypto communications post-FTX collapse, emphasizing the need for accurate information.
The Financial Industry Regulatory Authority (FINRA) has identified substantial regulatory breaches in the majority of crypto-related public communications it examined. This review came in the wake of the FTX collapse in November 2022, which sent shockwaves through the crypto industry.
Starting in November 2022, FINRA closely scrutinized over 500 retail communications related to crypto assets. Their findings were alarming: approximately 70% of these communications breached regulatory guidelines. These infringements often involved presenting misleading or exaggerated information about crypto assets, or failing to conform to the required standards for public communications.
Misleading Crypto Communications
Ira Gluck, FINRA’s senior director, stressed the heightened risk caused by these problematic communications in the burgeoning crypto market. He emphasized the necessity for clear and accurate information in crypto-related communications, highlighting that they must adequately outline both risks and features of crypto investments and services. These communications vary widely, spanning from podcasts to major advertising spots such as those in the Super Bowl.
Gluck pointed out that common violations included deceptive claims about cryptocurrencies and inaccuracies regarding the application of federal securities laws to digital assets. FINRA’s targeted examination not only revealed these issues but also provided crypto firms with critical guidelines to ensure their public communications adhere to regulatory standards.
This review by FINRA was a direct response to the FTX collapse. Prior to its bankruptcy, FTX had been highly visible in its marketing efforts, engaging celebrities for endorsements, sponsoring major sporting events, and featuring its former CEO, Sam Bankman-Fried, in numerous media appearances.
As an organization sanctioned by the United States Congress, FINRA plays a pivotal role in protecting investors. While it operates independently of the government, it collaborates with the Securities and Exchange Commission (SEC) to grant broker-dealer licenses to crypto firms and to enforce compliance with established guidelines. However, because of that, many crypto enthusiasts view the likes of FINRA and SEC as the ones responsible for hindering growth and innovation in the sector.