FINRA Continues Focus on Crypto Asset Securities
Time 3 Minute Read
Categories: Regulatory

FINRA, the self-regulatory organization overseeing the US broker-dealer industry, recently announced two items of interest for broker-dealers offering crypto asset securities. On January 9, 2024, FINRA published its 2024 Annual Regulatory Oversight Report, which includes a detailed section for broker-dealers conducting a crypto asset business. Then, on January 23, 2024, FINRA published a report detailing the results of a targeted sweep examination on customer communications involving crypto assets, finding potential substantive violations of FINRA Rule 2210 in approximately 70 percent of surveyed communications.

The 2024 oversight report highlights a series of compliance issues for broker-dealers transacting in crypto assets. For example, the report highlights the need for the broker-dealer’s FINRA membership application to reflect the full scope of its crypto business. The report urges broker-dealers to establish written policies, procedures and controls for crypto regarding topics such as due diligence, trading, custody and compliance with law. In particular, the report highlights ensuring that a firm’s anti-money laundering program contemplates crypto. FINRA further urges broker-dealers to test for potential weaknesses in cybersecurity controls for any crypto asset-related business lines, and that firms conduct adequate surveillance on crypto transactions and customer communications.

The January 23 report presents FINRA’s finding from a November 2022 sweep of approximately 500 retail customer communications. FINRA observed the following communication practices that were inconsistent with FINRA Rule 2210:  

  • Failure to clearly differentiate in communications, including those on mobile apps, between crypto assets offered through an affiliate of the broker-dealer or another third party, and products and services offered directly by the broker-dealer itself.
  • False statements or implications that crypto assets functioned like cash or cash equivalent instruments.
  • Other false or misleading statements or claims regarding crypto assets.
  • Comparisons of crypto assets to other assets (such as stocks or cash) without providing a basis to compare the varying features and risks of these investments.
  • Unclear and misleading explanations of how crypto assets work and their core features and risks.
  • Failure to provide a basis to evaluate crypto assets by omitting clear explanations of how crypto assets are issued, held, transferred or sold. 
  • Misrepresenting that the protections of the federal securities laws or FINRA rules applied to the crypto assets.
  • Misleading statements about the extent to which certain crypto assets are protected by the Securities Investor Protection Corporation (SIPC).

The January 23 report also offered a series of discussion prompts to help broker-dealers ensure statements and claims about crypto assets are not misleading, and that they present a fair and balanced discussion of potential risks.

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    Scott brings in-depth knowledge of SEC policies, procedures and enforcement philosophy to each representation. Scott regularly advises clients across a broad sector of the economy facing sensitive reporting, compliance and ...

The Hunton Andrews Kurth Blockchain Blog features opinions and legal analysis as we follow the development and use of distributed ledger technology known as the blockchain.


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