[Co-author: Katie Shaffer]
The Financial Industry Regulatory Authority, Inc. on January 23, 2024. (“FINRA”) published a separate examination amendment effective November 2022 designed to evaluate member firms’ compliance with FINRA Rule 2210. . Contacting retail customers of “cryptoassets” (assets that are generally issued or transferred using distributed ledger technology or blockchain technology, so a particular cryptocurrency may or may not qualify as a “security” under the federal securities laws) and communication services.
FINRA Rule 2210 (Public Relations), among other things, requires that member firms' public communications be fair, balanced, and have an objective basis for evaluating the facts of any product or service discussed. The Code prohibits false, inflated, exaggerated, unsubstantiated or misleading statements, and prohibits the omission of any material fact that would mislead communications. In addition, Section 10 (Member Notice) of the Securities Investor Protection Corporation (SIPC) Bylaws prohibits references to SIPC that could reasonably be construed as misleading.
FINRA found material violations of Rule 2210 in 70% of the communications it reviewed, including information about cryptoassets provided by a member, any third party affiliate, or another member. Examples of these violations include:
- Not distinguishing between cryptoassets offered by a direct affiliate and those offered by affiliates or third parties;
- Cryptoassets indicate whether they are denominated in cash or cash equivalent instruments.
- Comparing cryptocurrencies to other assets without providing a solid basis for comparing their characteristics and risks;
- Clear and concise explanations of how cryptocurrencies work and their main features and risks;
- Failure to clearly explain how crypto assets will be issued, held, transferred or sold;
- Misrepresent that the protections of the federal securities laws or FINRA regulations apply to cryptocurrencies; And
- Misrepresentations about the extent to which cryptocurrencies are protected by the SIPC or the Securities Investor Protection Act of 1970.
FINRA suggested member firms ask themselves questions when evaluating and monitoring their relationships with clients, including whether the relationship accurately describes the risks and limitations of cryptoassets or exceeds the legal or regulatory protections provided for those assets. Goods for sale
FINRA also recommends that firms take proactive measures in dealing with clients, such as: clarifying commissions and fees in crypto asset trading; A material waiver of SIPC protection is not otherwise enforceable; Make sure all technical terms related to crypto assets are explained properly.
Companies should expect continued focus in this area, including interactions with recently approved cryptocurrency-related ETFs.
FINRA's update can be accessed here .
[See source.]