US Financial Industry Regulatory Authority: 70% of crypto companies engage in misconduct, with product descriptions containing exaggerated and misleading information.

The Financial Industry Regulatory Authority (FINRA) in the United States released a year-long investigation report indicating that approximately up to 70% of cryptocurrency-related companies may violate specific investor protection guidelines by including "false, exaggerated, promised, unsubstantiated, or misleading" content in their risk disclosures and product descriptions.

What is FINRA?

The Financial Industry Regulatory Authority (FINRA) is a nonprofit organization established in 2007 through the consolidation of regulatory units from the former National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE).

The primary mission of FINRA is to protect investors, maintain fair and transparent markets, and promote compliance within the financial industry. Its responsibilities include establishing and enforcing industry standards, regulating and investigating the conduct of financial firms and professionals.

It is reported that FINRA's members are mainly financial professionals affiliated with brokerage firms and are supervised by the U.S. Securities and Exchange Commission (SEC).

FINRA Emphasizes the Need for Comprehensive and Clear Product Risk Disclosure by Crypto Companies

According to a report released by FINRA on the 23rd, in the examination of risk disclosures and product descriptions presented to retail investors by over 500 crypto-related companies, approximately 70% of the content exhibited "potential substantive violations."

The report states that the investigation focuses on whether crypto companies comply with FINRA Rule 2210, which prohibits false, exaggerated, untrue promises, improper, or misleading text descriptions in their risk disclosures or product introductions to prevent investor misunderstanding.

Specific violations include:

• Failure to clearly indicate and inform investors whether the crypto assets are provided by the company itself or by its partners or third parties
• Inclusion of false statements in disclosures, implying the functions and operations of crypto assets may be similar to cash or other cash equivalents
• Comparing crypto assets with stocks or cash without providing a reasonable basis for comparison on different characteristics and risks

FINRA Personnel: Reviewing Everything from Print Ads to Super Bowl Endorsements

Ira Gluck, head of FINRA's advertising regulation department, stated in a press release:

To enable investors to have sufficient information to evaluate their investment decisions regarding crypto assets, statements need to clearly and intuitively describe the product risks and features.

He added, "Nevertheless, with the growing interest in the crypto market and the asset itself, the potential harm caused by issues in the statements of risk disclosures continues to increase."

According to The Block, Ira Gluck also emphasized in a program:

FINRA not only reviews print ads but also various forms of promotional methods, ranging from a company-produced 90-minute podcast to a 15-second ad during the NFL Super Bowl.

It is understood that the investigation began following the FTX Black Swan event in November 2022, resulting in severe losses exceeding $16 billion for global users, excluding a $9 billion compensation gap and $24 billion owed to the U.S. Internal Revenue Service (IRS).

As a result, FINRA initiated a review program regarding the content exposed by crypto companies to the public. After all, FTX's advertising endorsement budget at the time could be said to have no limits.

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