There will likely be a “small number” of formal enforcement actions stemming from the Financial Industry Regulatory Authority’s targeted exam sweep of crypto communications launched over two years ago.
During a panel this week at FINRA’s annual conference in Washington, D.C., Jeff Fauci, a chief counsel in FINRA’s Enforcement Department, said that while some actions were likely forthcoming, none had been revealed yet.
“There’s been a small number of referrals to enforcement that are continuing to be worked through,” he said.
FINRA launched the targeted sweep in November 2022, weeks after FTX collapsed. FINRA probed how firms handled retail communications for crypto products and services, asking that firms “provide all retail communications” on crypto assets or services used to trade and hold those assets.
FINRA reviewed over 500 communications during the sweep, including ones about crypto assets offered by the member firm or another third party. According to an update on the sweep released in 2024, FINRA found potential violations in 70% of the crypto asset communications it reviewed (though a handful of firms were responsible for most “potentially violative” communications).
In the panel held on Tuesday, Fauci said examiners during the sweep focused on communications likening crypto assets to cash or cash equivalents, or discussing the risks of crypto without offering a “fair and balanced” presentation of those risks.
FINRA also found that some communications had failed to differentiate between assets offered through an affiliated firm or third party and those provided through the firm itself, and others misrepresented how federal securities laws or FINRA rules applied to the assets.
Later in the day, U.S. Rep. French Hill (R-Texas), the chairman of the House Financial Services Committee, said he hopes Congress will pass legislation on both a “dollar-backed stablecoin” that could act as a tokenized payment vehicle and clarifying when crypto should be regulated as a commodity or a security.
Legislation creating a framework for stablecoins failed in the Senate this week amid Democratic concerns about President Donald Trump’s ties to the crypto industry. (Axios cited Trump’s ties to the crypto platform World Liberty Financial and the president inviting the top investors to his meme coin to an “intimate private dinner” with him.)
While Hill has previously acknowledged that Trump’s crypto ties make passing legislation “more complicated,” the congressman primarily expressed frustration with former SEC Chair Gary Gensler during his discussion at the conference with former Vanguard Chairman and CEO Jack Brennan.
Hill said Gensler’s approach to crypto left investor protection in the “Wild West” (a phrase Gensler previously used to describe the crypto space), and said RIAs and broker/dealers were “fortunately or unfortunately” constantly fielding crypto-related questions from high-net-worth clients, family offices and institutions alike.
“Like, ‘how are we going to custody digital assets?’” Hill said. “‘How do we trade digital assets? What’s garbage, and what’s not garbage? What are the rules?’”
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