Finra finds many misleading claims about crypto assets

investmentnews.com:

Brokerages aren’t telling the full truth about cryptocurrency assets when they discuss them with customers, Finra warned Tuesday.

The Financial Industry Regulatory Authority Inc. flagged potential violations of its rules in 70% of the materials it reviewed during a targeted examination of firm communications regarding crypto products and services, according to a report released Tuesday. The broker-dealer self-regulator probed 500 communications between brokerages and retail investors.

Brokerages failed to comply with Finra rules that require their communications with the public be “fair and balanced” and provide a sound basis for evaluating facts regarding products and services. Finra prohibits false, exaggerated and misleading claims.

Finra’s exam sweep, which began in November 2022, zeroed in on what brokerages said about crypto assets sold by or through an affiliate or other third party. Finra found that firms made false or misleading statements about how crypto assets work and their core features and risks; compared them inaccurately to other assets, such as stocks or cash; misrepresented that investor protections in federal securities laws applied to crypto; and made other misleading statements.

“With the growth in this market and increased interest in crypto assets, the potential harm caused by problematic communications has also increased,” Ira Gluck, Finra senior director of advertising regulation, said in a Finra podcast.. “[I]n order to have enough information to evaluate a crypto asset investment or service, communications need to clearly describe its risks and features.”.

Crypto assets, such as digital tokens, have become popular investments, but they’re laden with risks for ordinary investors. Finra and the