January 31, 2024

Crypt-D’OH! FINRA says 70% of BD Crypto Asset Communications Are Deficient

In January 2024, FINRA provided an update on its targeted examination of firms’ crypto asset communications. FINRA launched this targeted examination series in November 2022 to “review the practices of certain member firms that actively communicate with retail customers concerning crypto assets and crypto asset-related services,” including for compliance with FINRA Rule 2210 (Communications with the Public). FINRA Rule 2210, among other requirements, prohibits claims that are false, exaggerated, promissory, unwarranted, or misleading and prohibits the omission of any material fact if the omission, in light of the context of the material presented, would cause a communication to be misleading.

During the exams, FINRA reviewed over 500 crypto asset communications from its member firms, including those distributed or made available by third parties. Remarkably, FINRA identified substantive rule violations in approximately 70% of the communications it reviewed.

High Level Themes

FINRA’s findings identified several common themes of deficiency in the crypto asset communications it reviewed from its members, including:

  • Communications, including those on mobile apps, failed to clearly differentiate between crypto assets offered through an affiliate of the member or another third party, and products and services offered directly by the member itself;
  • Communications contained false statements or implications that crypto assets functioned like cash or cash equivalent instruments or other false or misleading statements or claims regarding crypto assets;
  • Communications compared crypto assets to other assets (e.g., stock investments or cash) without providing a sound basis to compare the varying features and risks of the products being identified;
  • For firms that offer customers the ability to trade both securities and non-security crypto assets, communications failed to distinguish which entity offers which product or service;
  • Communications contained unclear and misleading explanations of how crypto assets work, including core features and risks;
  • Communications failed to provide a sound basis to evaluate crypto assets by omitting clear explanations of how crypto assets are issued, held, transferred, or sold;
  • Communications falsely implied that direct exposure to crypto existed in cases where an investment was in crypto asset futures or other crypto infrastructure;
  • Communications misrepresented that the protections of the federal securities laws or FINRA rules applied to non-security crypto assets identified within the communications and included misleading statements about the extent to which certain crypto assets are protected by SIPC or under SIPA;
  • Communications included unwarranted or misleading content, like describing crypto assets as liquid or easily tradable, overstating the safety of trading crypto assets, implying crypto assets are secured by a trading platform or backed by a clearing firm, or comparisons that implied that crypto assets present similar benefits to gold or cash alternatives.

Shape Up or Else!

With the results of FINRA’s examination sweep now published, firms are on notice regarding the potential pitfalls of their crypto asset communications. Firms planning to engage in business lines involving crypto assets (whether directly or through an affiliate), especially now that bitcoin spot ETFs are approved, should establish procedures, processes, and controls to review (and approve, if necessary) crypto asset communications to ensure compliance with the applicable content standards and other requirements in FINRA Rule 2210.


This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.