FTX Downfall Prompts FINRA to Investigate Communications Within Crypto Firms

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Last Updated on November 19, 2022 by Bitfinsider

The American self-regulatory authority, the Financial Industry Regulatory Authority (FINRA), has started looking into the firm’s retail communications regarding the crypto goods and services it provides.

The regulatory agency said in an official notice that it will be conducting a focused investigation into companies’ handling of retail communications from July 1 through September 30. Following the failure of the FTX cryptocurrency exchange, it was decided to look at retail communications pertaining to cryptocurrencies.

According to FINRA, a “retail communication” is any written (including electronic) message sent to or made available to more than 25 retail investors in a single 30-day period. In addition to written communications, it also applies to video, social media, mobile apps, and websites.

In its exam notice, FINRA requested companies to provide additional details for each communication, such as the date the communication was first made public, whether the communication was submitted to FINRA’s advertising regulation department, whether a principal at the company gave the communication their approval, and a list of any cryptocurrency assets or services that were mentioned.

FINRA has asked that companies submit detailed supervisory procedures for the “review, approval, record-keeping and dissemination” of the communications together with any applicable compliance regulations or documents. Additionally, it asked for details about any agreements made with affiliates regarding the creation or distribution of the messages as well as any insight such affiliates may have into the intended audience.

The investigation got under way on Nov. 14 with the goal of determining whether any of the retail cryptocurrency items or services had deceptive advertising. At the height of the cryptocurrency bull run, numerous corporations and celebrities started to promote cryptocurrency. FTX was one of the most talked-about advertisements at the time, and cryptocurrency adverts dominated the Super Bowl in 2022 as well.

Given that the majority of these commercials didn’t follow any advertising guidelines and frequently concealed the risks involved with cryptocurrency investments while celebrating the huge profits, the flood of adverts became a serious issue for regulators.

A class-action lawsuit has been filed against numerous celebrities who served as brand advocates for the FTX cryptocurrency exchange, including Tom Brady, Larry David, and Steph Curry. According to the lawsuit, famous people promoted FTX’s dubious scam, which was created to bilk inexperienced investors from throughout the nation.

Authorities in the United Kingdom, Singapore, and Spain tightened the guidelines for marketing messages and client recruiting tactics used by crypto firms at the beginning of the year. In the midst of the market volatility, numerous other nations and international companies have also restricted cryptocurrency advertising.

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