FINRA Fines Digital Brokerage Services Over Crypto-Related Communications

Digital Brokerage Services LLC (DBS) has agreed to pay an $85,000 fine and accept a formal censure as part of a settlement with the Financial Industry Regulatory Authority (FINRA) over deficiencies in its retail communications related to crypto assets.

FINRA said DBS customers access their brokerage accounts through a mobile application that also allows users to trade crypto assets offered by an unaffiliated third party. Between July and September 2022, DBS distributed webpages and social media content promoting the app and crypto-related services that did not meet FINRA's content standards.

According to the regulator, some of the communications drew unbalanced comparisons between crypto assets and cash. One example cited stated that "unlike crypto, cash can be prone to counterfeiting," while failing to adequately describe key risks associated with crypto investing, including the possibility of losing the full amount invested.

FINRA also found that certain promotional materials did not provide a fair discussion of both risks and potential benefits. In one instance, a social media video described how the app "makes it easy to get into crypto" and noted that "it's only $1 to get started," without clearly identifying the speculative nature and high risk of the assets involved.

In addition, several communications did not clearly disclose which entity was responsible for offering the crypto assets or distinguish those services from DBS's own brokerage offerings. FINRA said this could have confused retail investors, particularly since the unaffiliated crypto provider was not a registered broker-dealer or a member of FINRA or SIPC.

After being notified by FINRA, DBS discontinued certain crypto-related communications and reviewed how it described crypto assets and services, updating or withdrawing materials to align with regulatory standards. FINRA concluded that the conduct violated Rules 2210 and 2010, which govern communications with the public and standards of commercial honor.