FINRA Fines Digital Brokerage Services $85,000 Over Crypto-Related Communications

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

According to FINRA, the issues stemmed from communications distributed between July and September 2022 regarding DBS's mobile application and crypto asset services offered through an unaffiliated third party. While DBS customers used the app to access brokerage accounts, the same platform also allowed investors to trade crypto assets provided by an entity that was not affiliated with DBS.

FINRA found that certain webpages and social media posts failed to meet the content standards set out in FINRA Rule 2210. Some communications were deemed unbalanced, including comparisons that highlighted perceived drawbacks of cash while downplaying the risks of crypto assets. One example cited by FINRA stated that "unlike crypto, cash can be prone to counterfeiting," while only briefly noting that "crypto can be wildly volatile" and omitting other material risks, such as the potential for total loss.

Other communications were found to lack balanced disclosure of risks and benefits. FINRA pointed to a social media video claiming the app "makes it easy to get into crypto" and that "it's only $1 to get started," without clearly identifying the speculative nature and high-risk profile of the crypto assets involved.

Regulators also raised concerns that some communications did not clearly identify which entity was offering the crypto services or distinguish them from DBS's brokerage services. In one instance, a post stating "Crypto is now on [mobile application]. Trade crypto on the same app where you can trade stocks" was viewed as potentially misleading, as the crypto services were offered by an unaffiliated firm that was not a registered broker-dealer or a member of FINRA or SIPC.

After being notified by FINRA, DBS stopped using certain crypto-related communications and conducted a review of how it described crypto assets and related services. The firm subsequently discontinued or revised its materials to align with FINRA's content standards.

FINRA concluded that DBS's actions violated Rules 2210(d)(1)(A), 2210(d)(1)(B), 2210(d)(3), and 2010, leading to the financial penalty and censure.