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FTX meltdown triggers FINRA into probing crypto comms

The Financial Industry Regulatory Authority (FINRA), the US self-regulatory organization, has launched an investigation into the firm’s retail communications regarding crypto products and services offered by them.

The regulatory body announced in an official notice that it was launching a targeted examination of firms on how they handled retail communications between July 1 and the end of September. The decision to investigate crypto-related retail communications comes in the wake of the collapse of the FTX crypto exchange.

Any written (including electronic) message issued or made available to more than 25 retail investors within any 30-day period is referred to as a “retail communication” according to FINRA. This also applies to video, social media, mobile apps and websites, in addition to writing communications.

In its examination notice, FINRA asked firms to provide additional information for each individual communication, such as the date it was first disclosed, whether it was filed with FINRA’s Advertising Regulation Division, or whether a principal at the firm approved the communication and the identification of the crypto assets or services mentioned in the communication.

In addition to any relevant compliance rules or materials, FINRA requested that firms submit written supervisory procedures for the “examination, approval, recordkeeping and distribution” of the communications. It also asked for information about any contracts made with affiliates regarding the production or distribution of the messages, as well as any knowledge such affiliates may have about the target audience.

The investigation began on November 14 with the aim of investigating whether any of the retail crypto products or services were falsely advertised. At the height of the crypto bull run, crypto advertising became the flavor of many brands and celebrities. Crypto ads also dominated the Super Bowl 2022, with FTX being one of the most talked about ads at the time.

Related: Thailand SEC to enforce strict guidelines for crypto advertising

The flood of ads became a major concern for regulators, as the majority of these ads did not meet any advertising standards and often hid the risks associated with crypto-investing while extolling the high returns.

Many celebrities such as Tom Brady, Larry David and Steph Curry, who were brand ambassadors for the FTX crypto exchange, are facing a class action lawsuit. The lawsuit alleged that celebrities advertised FTX’s fraudulent scheme designed to take advantage of unsophisticated investors from around the country.

At the start of the year, authorities in the United Kingdom, Singapore and Spain tightened requirements around crypto firms’ marketing messages and customer recruitment practices. Many other countries and global brands have also imposed restrictions on crypto advertising amid market turmoil.

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