Crypto world fuelled by hype — and securities watchdogs aren’t amused

Citing concerns about tactics designed to stoke investors’ fear of missing out, or FOMO, as well as issues surrounding unsubstantiated claims about the safety and efficiency of crypto platforms, Canadian securities regulators are warning crypto-trading firms to tone it down.

In new joint guidance, the Canadian Securities Administrators (CSA) and Investment Industry Regulatory Organization of Canada (IIROC) are sounding the alarm about the marketing and advertising practices of crypto-trading firms.

The regulators said that they’ve observed an increase in marketing by crypto firms, and they said they’ve also seen statements in those promotional efforts that could mislead investors.

Further, the industry watchdogs are worried about “[crypto] platforms’ use of gambling-style promotions that may encourage excessive and risky trading by retail investors.”

Among other things, the guidance by the regulators warns such firms against using celebrity endorsements to entice investors as well as making baseless claims about their platform’s safety ratings. Additionally, the firms shouldn’t promise the “best” or “cheapest” crypto-trading.

The guidance indicates that firms that promise commission-free trading without properly disclosing alternative methods of compensation that they generate — such as trading markups, or payment for order flow— could be deceiving investors.

The missive from regulators comes amid an ongoing effort to bring largely unregulated crypto firms into the regulated world.

Back in the spring, the CSA warned firms to start the process of seeking registration or else they’d face enforcement action — and, the Ontario Securities Commission (OSC) has brought several disciplinary cases against firms for ignoring that warning.

This new guidance is directed at firms that are seeking registration in response to the regulators’ demands, along with registered firms that are already in, or are considering getting into, the crypto trading business.

“Misleading advertisements and improper marketing strategies may encourage investors to take on risks they would normally avoid, and not respecting the requirements under securities law and IIROC rules may raise concerns about a crypto trading platform’s fitness for registration,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF), in a release.

“Crypto trading platforms should consider their advertising and marketing strategies in the context of their obligations to treat clients fairly and honestly,” added Andrew Kriegler, president and CEO of IIROC. He also noted that the self-regulatory organization “will continue to work closely with the CSA to ensure investors are protected.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.